<PAGE>
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                         INSURANCE AND INDEMNITY AGREEMENT
                                          
                                          
                                       among
                                          
                                          
                         FINANCIAL SECURITY ASSURANCE INC.,
                                          
                                          
                   ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B,
                                          
                         ARCADIA RECEIVABLES FINANCE CORP.
                                          
                                        and
                                          
                               ARCADIA FINANCIAL LTD.
                                          
                             Dated as of June 23, 1998
                                          


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                    Arcadia Automobile Receivables Trust, 1998-B
                                          


       $  59,500,000 -- 5.6275% Class A-1 Automobile Receivables-Backed Notes
                                          
                                          
       $ 188,000,000 -- 5.789% Class A-2 Automobile Receivables-Backed Notes
                                          
                                          
       $ 141,500,000 -- 5.950% Class A-3 Automobile Receivables-Backed Notes
                                          
                                          
       $ 106,500,000 -- 6.000% Class A-4 Automobile Receivables-Backed Notes
                                          
                                          
       $  55,000,000 -- 6.060% Class A-5 Automobile Receivables-Backed Notes
                                          

                                          
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<PAGE>

                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                           Page
<S>                                                                                        <C>

ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2

     Section 1.01   Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2

ARTICLE II. REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . . . . . . . . . . . . . . . .  7

     Section 2.01   Representations and Warranties of the Trust. . . . . . . . . . . . . .  7
     Section 2.02   Affirmative Covenants of the Trust . . . . . . . . . . . . . . . . . . 10
     Section 2.03   Negative Covenants of the Trust. . . . . . . . . . . . . . . . . . . . 15
     Section 2.04   Representations and Warranties of Arcadia Financial and the Seller . . 17
     Section 2.05   Affirmative Covenants of Arcadia Financial and the Seller. . . . . . . 21
     Section 2.06   Negative Covenants of Arcadia Financial and the Seller . . . . . . . . 26
     Section 2.07   Representations and Warranties of Arcadia Financial. . . . . . . . . . 28
     Section 2.08   Affirmative Covenants of Arcadia Financial . . . . . . . . . . . . . . 30
     Section 2.09   Negative Covenants of Arcadia Financial. . . . . . . . . . . . . . . . 33

ARTICLE III. THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION . . . . . . . . . . . . . . . 35

     Section 3.01   Conditions Precedent to Issuance of the Note Policy. . . . . . . . . . 35
     Section 3.02   Payment of Fees and Premium. . . . . . . . . . . . . . . . . . . . . . 40
     Section 3.03   Reimbursement and Additional Payment Obligation. . . . . . . . . . . . 41
     Section 3.04   Certain Obligations Not Recourse to Arcadia Financial; 
                    Recourse to Trust Property.. . . . . . . . . . . . . . . . . . . . . . 42
     Section 3.05   Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
     Section 3.06   Payment Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
     Section 3.07   Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

ARTICLE IV. FURTHER AGREEMENTS; MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 45

     Section 4.01   Effective Date: Term of Agreement. . . . . . . . . . . . . . . . . . . 45
     Section 4.02   Further Assurances and Corrective Instruments  . . . . . . . . . . . . 45
     Section 4.03   Obligations Absolute.. . . . . . . . . . . . . . . . . . . . . . . . . 45
     Section 4.04   Assignments; Reinsurance; Third-Party Rights.. . . . . . . . . . . . . 46
     Section 4.05   Liability of Financial Security. . . . . . . . . . . . . . . . . . . . 47

ARTICLE V. EVENTS OF DEFAULT; REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . 47

     Section 5.01   Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
     Section 5.02   Remedies; Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE VI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

     Section 6.01   Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
     Section 6.02   Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
     Section 6.03   Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
     Section 6.04   Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
     Section 6.05   Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . 52
     Section 6.06   Consent of Financial Security. . . . . . . . . . . . . . . . . . . . . 53
     Section 6.07   Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53


                                       i
<PAGE>

     Section 6.08   Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
     Section 6.09   Trial by Jury Waived . . . . . . . . . . . . . . . . . . . . . . . . . 54
     Section 6.10   Limited Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
     Section 6.11   Limited Liability of Wilmington Trust Company. . . . . . . . . . . . . 54
     Section 6.12   Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>

SCHEDULE 1


                                       ii

<PAGE>

                         INSURANCE AND INDEMNITY AGREEMENT

          INSURANCE AND INDEMNITY AGREEMENT dated as of June 23, 1998, among 
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company 
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B, a 
Delaware business trust (the "Trust"), ARCADIA RECEIVABLES FINANCE CORP., a 
Delaware corporation (the "Seller"), and ARCADIA FINANCIAL LTD., a Minnesota 
corporation (when referred to individually hereunder, "Arcadia Financial", 
when referred to as servicer under the Sale and Servicing Agreement referred 
to below, the "Servicer").

                              INTRODUCTORY STATEMENTS

          1.   The Seller is the owner of the Receivables.  The Seller 
proposes to sell to the Trust all of its right, title and interest in and to 
the Receivables and certain other property pursuant to the Sale and Servicing 
Agreement.  The Trust will issue Notes pursuant to the Indenture.

          2.   Each Note will be secured by the Indenture Property.  The 
Trust has requested that Financial Security issue a financial guaranty 
insurance policy guarantying respectively certain distributions of interest 
and principal on the Notes on each Distribution Date (including any such 
distributions subsequently avoided as a preference under applicable 
bankruptcy law) upon the terms, and subject to the conditions, provided 
herein.

          3.   Arcadia Financial and the Seller have previously entered into 
and may in the future enter into one or more pooling and servicing agreements 
or sale and servicing agreements with a trust and Seller has previously 
entered into a Repurchase Agreement dated as of December 3, 1996, as amended, 
among the Seller and Arcadia Receivables Conduit Corp., in each case, 
pursuant to which the Seller sold or will sell all of its right, title and 
interest in and to receivables and the other trust property and in connection 
therewith Financial Security has and may in the future issue additional 
policies with respect to certain guaranteed distributions on the 
corresponding certificates, the corresponding notes or both.

          4.   The parties hereto desire to specify the conditions precedent 
to the issuance of the Note Policy by Financial Security, the payment of 
premium in respect of the Note Policy, the indemnity and reimbursement to be 
provided to Financial Security in respect of amounts paid by Financial 
Security under the Note Policy or otherwise and certain other matters.

          In consideration of the premises and of the agreements herein 
contained, Financial Security, the Trust, Arcadia Financial, individually and 
as Servicer, and the Seller hereby agree as follows:


                                       1
<PAGE>

                                   ARTICLE I.

                                  DEFINITIONS

          Section 1.01   DEFINITIONS.  All words and phrases defined in the
Trust Agreement, the Sale and Servicing Agreement or in the Spread Account
Agreement shall have the same meanings in this Agreement.  Unless otherwise
specified, if a word or phrase defined in the Trust Agreement, the Sale and
Servicing Agreement or in the Spread Account Agreement can be applied with
respect to one or more Series, such a word or phrase shall be used herein as
applied to Series 1998-B. In addition, the following words and phrases shall
have the following respective meanings:

          "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

          "AGREEMENT" means this Insurance and Indemnity Agreement, as the same
may be amended, modified or supplemented from time to time.

          "AUTHORIZED OFFICER" means, with respect to a corporation, the
president, the chief financial officer or any vice president.

          "CODE" means the Internal Revenue Code of 1986, including, unless 
the context otherwise requires, the rules and regulations thereunder, as 
amended from time to time.

          "COMMISSION" means the Securities and Exchange Commission.

          "COMMONLY CONTROLLED ENTITY" means with respect to the Trust, the 
Seller or Arcadia Financial, as the case may be, each entity, whether or not 
incorporated, which is affiliated with the Trust, the Seller or Arcadia 
Financial, as the case may be, pursuant to Section 414(b), (c), (m) or (o) of 
the Code.

          "DEFAULT" means any event which results, or which with the giving 
of notice or the lapse of time or both would result, in an Event of Default.

          "ERISA" means the Employee Retirement Income Security Act of 1974, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

          "EVENT OF DEFAULT" means any event of default specified in Section 
5.01 of this Agreement.

          "EXPIRATION DATE" means, with respect to the Note Policy, the final 
date of the Term of such Note Policy, as specified therein.

          "FINANCIAL SECURITY" means Financial Security Assurance Inc., a New 
York stock insurance company, its successors and assigns.


                                       2
<PAGE>

          "FINANCIAL STATEMENTS" means with respect to Arcadia Financial the 
audited consolidated balance sheets as of December 31, 1997, December 31, 
1996, and December 31, 1995 and the related audited consolidated statements 
of income, retained earnings and cash flows for the 12-month periods then 
ended and the notes thereto.

          "FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant 
to the terms of the Note Policy.

          "INDENTURE COLLATERAL AGENT" means initially, Norwest Bank 
Minnesota, National Association, in its capacity as collateral agent on 
behalf of Financial Security and the Indenture Trustee on behalf of the 
Noteholders pursuant to the Indenture, its successor in interest and any 
successor Indenture Collateral Agent under the Indenture.

          "INDENTURE PROPERTY" means the property pledged to the Indenture 
Collateral Agent on behalf of Financial Security and the Indenture Trustee on 
behalf of the Noteholders pursuant to the Indenture.

          "INSURANCE AGREEMENT INDENTURE CROSS DEFAULT" means an Event of 
Default specified in clause (a), (f), (g), (h) or (i)  of Section 5.01.

          "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

          "IRS" means the Internal Revenue Service.

          "LATE PAYMENT RATE" means the greater of (i) a per annum rate 
equal to 3 percent in excess of Financial Security's cost of funds, 
determined on a monthly basis, or (ii) a per annum rate equal to 3 percent 
in excess of the arithmetic average of the prime or base lending rates 
publicly announced by The Chase Manhattan Bank, N.A. (New York, New York) and 
Citibank, N.A. (New York, New York), as in effect on the last day of the 
month for which interest is being computed, but, in either case, in no event 
greater than the maximum rate permitted by law.

          "LIEN" means, as applied to the property or assets (or the income 
or profits therefrom) of any Person, in each case whether the same is 
consensual or nonconsensual or arises by contract, operation of law, legal 
process or otherwise: (a) any mortgage, lien, pledge, attachment, charge, 
lease, conditional sale or other title retention agreement, or other security 
interest or encumbrance of any kind; or (b) any arrangement, express or 
implied, under which such property or assets are transferred, sequestered or 
otherwise identified for the purpose of subjecting or making available the 
same for the payment of debt or performance of any other obligation in 
priority to the payment of the general, unsecured creditors of such Person.

          "MATERIAL ADVERSE CHANGE" means, in respect of any Person, a 
material adverse change in (i) the business, financial condition, results of 
operations, or properties of such Person and its Subsidiaries taken as a 
whole, (ii) the ability of such Person to perform its obligations 


                                       3
<PAGE>

under any of the Transaction Documents to which it is a party or (iii) the 
ability of Financial Security or the Trust to realize the benefits or 
security afforded under the Transaction Documents.

          "MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning 
of Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled 
Entity makes contributions or has liability.

          "NOTE POLICY" means the financial guaranty insurance policy, 
including any endorsements thereto, issued by Financial Security with respect 
to the Notes, substantially in the form attached as Exhibit A hereto.

          "NOTICE OF CLAIM" means the Notice of Claim and Certificate in the 
form attached as Exhibit A to Endorsement No. 1 to the Note Policy.

          "OTHER TRUST PROPERTY" means the property conveyed by the Seller to 
the Trust pursuant to the Sale and Servicing Agreement and any Subsequent 
Transfer Agreement.

          "PBGC" means the Pension Benefit Guaranty Corporation or any 
successor agency, corporation or instrumentality of the United States to 
which the duties and powers of the Pension Benefit Guaranty Corporation are 
transferred.

          "PLAN" means any pension plan (other than a Multiemployer Plan) 
covered by Title IV of ERISA, which is maintained by a Commonly Controlled 
Entity or in respect of which a Commonly Controlled Entity has liability.

          "PORTFOLIO PERFORMANCE EVENT OF DEFAULT" means an Event of Default 
specified in clause (j), (k), or (1) of Section 5.01.

          "PREMIUM" means the premium payable in accordance with Section 3.02 
of this Agreement.

          "PREMIUM LETTER" means the side letter between Financial Security 
and Arcadia Financial dated the date hereof in respect of the premium payable 
by Arcadia Financial in consideration of the issuance of the Note Policy.

          "PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to 
the premium payable in accordance with Section 3.02 of this Agreement, 
payable by Arcadia Financial to Financial Security in monthly installments 
commencing on the first Distribution Date following the Premium Supplement 
Commencement Date and on each Distribution Date thereafter, payable in 
accordance with the terms of the Premium Letter.

          "PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence 
of an Event of Default in respect of which the Premium Supplement shall have 
been declared due and payable in accordance with Section 5.02 of this 
Agreement.


                                       4
<PAGE>

          "PREVIOUS SERIES TRANSACTION DOCUMENTS" means the transaction 
documents as defined in each of the insurance and indemnity agreements 
related to Olympic Automobile Receivables Trust, 1993-A, Olympic Automobile 
Receivables Trust, 1993-B, Olympic Automobile Receivables Trust, 1993-C, 
Olympic Automobile Receivables Trust, 1993-D, Olympic Automobile Receivables 
Trust, 1994-A, Olympic Automobile Receivables Trust, 1994-B, Olympic 
Automobile Receivables Trust, 1995-A, Olympic Automobile Receivables Trust, 
1995-B, Olympic Automobile Receivables Trust, 1995-C, Olympic Automobile 
Receivables Trust, 1995-D, Olympic Automobile Receivables Trust, 1995-E, 
Olympic Automobile Receivables Trust, 1996-A, Olympic Automobile Receivables 
Trust, 1996-B, Olympic Automobile Receivables Trust, 1996-C, Olympic 
Automobile Receivables Trust, 1996-D, Olympic Automobile Receivables Trust, 
1997-A, Arcadia Automobile Receivables Trust, 1997-B, Arcadia Automobile 
Receivables Trust 1997-C, Arcadia Automobile Receivables Trust, 1997-D, 
Arcadia Automobile Receivables Trust, 1998-A and the Warehousing Notes.

          "PROSPECTUS" has the meaning set forth in Section 2.04(o) of this 
Agreement.

          "RELATED DOCUMENTS" means the Transaction Documents except for the 
Sale and Servicing Agreement.

          "REGISTRATION STATEMENT" has the meaning set forth in Section 
2.04(o) of this Agreement.

          "REPORTABLE EVENT" means any of the events set forth in Section 
4043(b) of ERISA or the regulations thereunder.

          "RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property 
or assets (or the income or profits therefrom) of any Person, in each case 
whether the same is consensual or nonconsensual or arises by contract, 
operation of law, legal process or otherwise, any material condition to, or 
restriction on, the ability of such Person or any transferee therefrom to 
sell, assign, transfer or otherwise liquidate such property or assets in a 
commercially reasonable time and manner or which would otherwise materially 
deprive such Person or any transferee therefrom of the benefits of ownership 
of such property or assets.

          "SALE AND SERVICING AGREEMENT" means the Sale and Servicing 
Agreement dated as of June 1, 1998 among the Seller, Arcadia Financial, in 
its individual capacity and as Servicer, the Back-up Servicer and the Trust 
pursuant to which the Initial Receivables are to be sold, serviced and 
administered, as the same may be amended from time to time.

          "SECURITIES ACT" means the Securities Act of 1933, including, 
unless the context otherwise requires, the rules and regulations thereunder, 
as amended from time to time.

          "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 
1934, including, unless the context otherwise requires, the rules and 
regulations thereunder, as amended from time to time.


                                       5
<PAGE>

          "SENIOR NOTE INDENTURE" means the Indenture dated as of March 12, 
1997 between Arcadia Financial (f/k/a Olympic Financial Ltd.) and Norwest 
Bank Minnesota, National Association, as amended or supplemented (including 
that First Supplemental Indenture dated as of March 12, 1997 and that Second 
Supplemental Indenture dated as of October 8, 1997 (each, a "Supplemental 
Indenture")), relating to $375,000,000 principal amount of Arcadia 
Financial's currently outstanding 11 1/2% Senior Notes due 2007.

          "SERIES 1998-B" means the Series of Notes issued on the date hereof 
pursuant to the Indenture.

          "SERIES OF NOTES" or "SERIES" means Series 1998-B or any, or as the 
context may require, all, additional series of notes issued as described in 
paragraph 3 of the Introductory Statements hereto.

          "SERVICER TERMINATION SIDE LETTER" means the letter from Financial 
Security to the Servicer dated as of June 23, 1998, with regard to the 
renewal of the term of the Servicer.

          "SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, 
dated as of March 25, 1993, as amended and restated as of June 23, 1998 and 
supplemented in accordance with the terms thereof, among Arcadia Financial, 
the Seller, Financial Security, the Indenture Trustee and the Collateral 
Agent.

          "STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock 
Pledge Agreement, dated as of December 3, 1996, as amended and restated, 
among Financial Security, Arcadia Financial, and the Collateral Agent, as the 
same may be amended from time to time.

          "SUBSIDIARY" means, with respect to any Person, any corporation of 
which a majority of the outstanding shares of capital stock having ordinary 
voting power for the election of directors is at the time owned by such 
Person directly or through one or more Subsidiaries.

          "TERM OF THE NOTE POLICY" means, with respect to the Note Policy, 
the meaning provided therein.

          "TERM OF THIS AGREEMENT" shall be determined as provided in Section 
4.01 of this Agreement.

          "TRANSACTION" means the transactions contemplated by the 
Transaction Documents, including the transactions described in the 
Registration Statement.

          "TRANSACTION DOCUMENTS" means this Agreement, the Sale and 
Servicing Agreement, the Trust Agreement, the Certificate of Trust, the 
Indenture, the Underwriting Agreement, the Purchase Agreement, the Premium 
Letter, the Stock Pledge Agreement, the Lockbox Agreement, the Depository 
Agreements, the Custodian Agreement, the Servicer Termination Side Letter, 
the Spread Account Agreement and the Administration Agreement.


                                       6
<PAGE>

         "TRUST AGREEMENT" means the Trust Agreement, dated as of June 1, 
1998, among the Seller, Financial Security and Wilmington Trust Company, as 
Owner Trustee.

         "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, 
including, unless the context otherwise requires, the rules and regulations 
thereunder, as amended from time to time.

         "UNDERFUNDED PLAN" means any Plan that has an Underfunding.

         "UNDERFUNDING" means, with respect to any Plan, the excess, if any, 
of (a) the present value of all benefits under the Plan (based on the 
assumptions used to fund the Plan pursuant to Section 412 of the Code) as of 
the most recent valuation date over (b) the fair market value of the assets 
of such Plan as of such valuation date.

         "UNDERWRITERS" means, J.P. Morgan Securities Inc., BancAmerica 
Robertson Stephens, Chase Securities Inc. and Donaldson, Lufkin & Jenrette 
Securities Corporation.

         "UNDERWRITING AGREEMENT" means the Pricing Agreement, dated June 10, 
1998, among Arcadia Financial and the Seller and the Underwriters.

         "WAREHOUSING NOTES" means the Variable Funding Note issued pursuant 
to the Warehousing Series Indenture dated as of December 3, 1996, as amended 
and supplemented, between Arcadia Receivables Conduit Corp., as the issuer, 
and Norwest Bank Minnesota, National Association, as trustee.

                                 ARTICLE II.

                 REPRESENTATIONS, WARRANTIES AND COVENANTS

         Section 2.01   REPRESENTATIONS AND WARRANTIES OF THE TRUST.  The 
Trust represents, warrants and covenants, as of the date hereof and as of the 
Closing Date, as follows:

         (a)  DUE ORGANIZATION AND QUALIFICATION.  The Trust is duly formed 
and validly existing as a Delaware statutory business trust and is in good 
standing under the laws of the State of Delaware, with power and authority to 
own its properties and to conduct its business.  The Trust is duly qualified 
to do business, is in good standing and has obtained all necessary licenses, 
permits, charters, registrations and approvals (together, "approvals") 
necessary for the conduct of its business as described in the Prospectus and 
the performance of its obligations under the Transaction Documents, in each 
jurisdiction in which the failure to be so qualified or to obtain such 
approvals would render the Receivables in such jurisdiction or any 
Transaction Document unenforceable in any respect or would otherwise have a 
material adverse effect upon the Transaction.

         (b)  POWER AND AUTHORITY.  The Trust has all necessary trust power and
authority to conduct its business as described in the Prospectus, to execute,
deliver and perform its obligations under this Agreement and each other
Transaction Document to which the Trust is a 


                                      7
<PAGE>

party and to carry out the terms of each such agreement, and has full power 
and authority to issue the Notes and pledge and assign its assets pursuant to 
the Indenture and has duly authorized the issuance of the Notes and the 
assignment of its assets by all necessary trust proceedings.

         (c)  DUE AUTHORIZATION.  The execution, delivery and performance of 
this Agreement and each other Transaction Document to which the Trust is a 
party has been duly authorized by all necessary action on the part of the 
Trust and does not require any additional approvals or consents or other 
action by or any notice to or filing with any Person by or on behalf of the 
Trust, including, without limitation, any governmental entity.

         (d)  NONCONTRAVENTION.  Neither the execution and delivery of this 
Agreement and each other Transaction Document to which the Trust is a party, 
the consummation of the Transaction nor the satisfaction of the terms and 
conditions of this Agreement and each other Transaction Document to which the 
Trust is a party,

         (i)  conflicts with or results in any breach or violation of any
     provision of the Certificate of Trust or the Trust Agreement or any law,
     rule, regulation, order, writ, judgment, injunction, decree, determination
     or award currently in effect having applicability to the Trust or any of
     its properties, including regulations issued by an administrative agency
     or other governmental authority having supervisory powers over the Trust,

        (ii)  constitutes a default by the Trust under or a breach of any
     provision of any loan agreement, mortgage, indenture or other agreement or
     instrument to which the Trust is a party or by which it or any of its
     properties is or may be bound or affected, or

       (iii)  results in or requires the creation of any Lien upon or in 
     respect of any of the Trust's assets except as otherwise expressly
     contemplated by the Transaction Documents.

         (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action, 
proceeding or investigation pending, or, to the Trust's best knowledge, 
threatened, before any court, regulatory body, administrative agency, 
arbitrator or governmental agency or instrumentality having jurisdiction over 
the Trust or its properties: (A) asserting the invalidity of this Agreement 
or any other Transaction Document to which the Trust is a party, (B) seeking 
to prevent the issuance of the Notes or the consummation of the Transaction, 
(C) seeking any determination or ruling that might materially and adversely 
affect the validity or enforceability of this Agreement or any other 
Transaction Document to which the Trust is a party, (D) which might result in 
a Material Adverse Change with respect to the Trust or (E) which might 
adversely affect the federal or state tax attributes of the Notes or the 
Trust.

         (f)  VALID AND BINDING OBLIGATIONS.  Each of the Transaction Documents
to which the Trust is a party, when executed and delivered by the Trust, and
assuming due authorization, execution and delivery by the other parties thereto,
will constitute the legal, valid and binding obligation of the Trust enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws


                                      8
<PAGE>

affecting creditors' rights generally and general equitable principles.  The 
Notes, when executed, authenticated and delivered in accordance with the 
Indenture, will be entitled to the benefits of the Indenture and will 
constitute legal, valid and binding obligations of the Trust, enforceable in 
accordance with their terms.

         (g)  NO CONSENTS.  No consent, license, approval or authorization 
from, or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by the Trust of this Agreement or of any other 
Transaction Document to which the Trust is a party, except (in each case) 
such as have been obtained and are in full force and effect.

         (h)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy 
employed or proposed to be employed by the Trust in the conduct of its 
business violates any law, regulation, judgment, agreement, order or decree 
applicable to the Trust which, if enforced, would result in a Material 
Adverse Change with respect to the Trust.

         (i)  ERISA.  The Trust does not maintain or contribute to, or have 
any obligation to maintain or contribute to, any Plan.  The Trust is not 
subject to any of the provisions of ERISA.

         (j)  COLLATERAL.  On the Closing Date, and on each Subsequent 
Transfer Date, the Trust will have good and marketable title to each item of 
Other Trust Property conveyed on such date and will own each such item free 
and clear of any Lien (other than Liens contemplated under the Indenture) or 
any equity or participation interest of any other Person.

         (k)  PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing 
Date, the Lien and security interest in favor of the Indenture Collateral 
Agent with respect to Indenture Property will be perfected by the filing of 
financing statements on Form UCC-1 in each jurisdiction where such recording 
or filing is necessary for the perfection thereof, the delivery of the 
Receivable Files for the Receivables to the Custodian, and the establishment 
of the Collection Account, the Subcollection Account, the Lockbox Account, 
the Pre-Funding Account, the Reserve Account and the Note Distribution 
Account in accordance with the provisions of the Transaction Documents, and 
no other filings in any jurisdiction or any other actions (except as 
expressly provided herein) are necessary to perfect the Collateral Agent's 
Lien on and security interest in the Collateral as against any third parties.

         (l)  SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the 
retention of funds in the Accounts and the acquisition of Eligible 
Investments in accordance with the Transaction Documents, such funds and 
Eligible Investments will be subject to a valid and perfected, first priority 
security interest in favor of the Collateral Agent on behalf of the Indenture 
Trustee (on behalf of the Noteholders) and Financial Security.

         (m)  COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Trust is not 
required to be registered as an "investment company" under the Investment 
Company Act.


                                      9
<PAGE>

         (n)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  The 
representations and warranties of the Trust set forth in each Transaction 
Document are (in each case) true and correct as if set forth herein.

         (o)  SPECIAL PURPOSE ENTITY.

         (i)  The capital of the Trust is adequate for the business and
     undertakings of the Trust.

        (ii)  Except as contemplated by the Transaction Documents, the Trust 
     is not engaged in any business transactions with Arcadia Financial, the 
     Seller or any Affiliate of either of them.

       (iii)  The Trust's funds and assets are not, and will not be, 
     commingled with the funds of any other Person, except as provided in the
     Transaction Documents.

         (p)  SOLVENCY; FRAUDULENT CONVEYANCE.  The Trust is solvent and will 
not be rendered insolvent by the Transaction or by the performance of its 
obligations under the Transaction Documents and, after giving effect to such 
Transaction, the Trust will not be left with an unreasonably small amount of 
capital with which to engage in its business.  The Trust does not intend to 
incur, or believes that it has incurred, debts beyond its ability to pay such 
debts as they mature.  The Trust does not contemplate the commencement of 
insolvency, bankruptcy, liquidation or consolidation proceedings or the 
appointment of a receiver, liquidator, conservator, trustee or similar 
official in respect of the Trust or any of its assets.

         Section 2.02  AFFIRMATIVE COVENANTS OF THE TRUST.  The Trust hereby 
agrees that during the Term of the Agreement, unless Financial Security shall 
otherwise expressly consent in writing:

         (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Trust will 
comply with all terms and conditions of this Agreement and each other 
Transaction Document to which it is a party and with all material 
requirements of any law, rule or regulation applicable to it.  The Trust will 
not cause or permit to become effective any amendment to or modification of 
any of the Transaction Documents to which it is a party unless (i) (so long 
as no Insurer Default shall have occurred and be continuing) Financial 
Security shall have previously approved in writing the form of such amendment 
or modification or (ii) if an Insurer Default shall have occurred and be 
continuing, such amendment would not adversely affect the interests of 
Financial Security.  The Trust shall not take any action or fail to take any 
action that would interfere with the enforcement of any rights under this 
Agreement or the other Transaction Documents.

         (b)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. 
The Trust shall keep or cause to be kept in reasonable detail books and 
records of account of the Trust's assets and business, which shall be 
furnished to Financial Security upon request.  The Trust shall furnish to 
Financial Security, simultaneously with the delivery of such documents to the 
Indenture Trustee or the Noteholders, as the case may be, copies of all 
reports, certificates, 


                                      10
<PAGE>

statements, financial statements or notices furnished to the Indenture 
Trustee or the Noteholders, as the case may be, pursuant to the Transaction 
Documents.

         (i)  ANNUAL FINANCIAL STATEMENTS.  As soon as available, and in
     any event within 90 days after the close of each fiscal year of the Trust,
     the audited balance sheets of the Trust as of the end of such fiscal year
     and the audited statements of income, changes in equityowners' equity and
     cash flows of the Trust for such fiscal year, all in reasonable detail and
     stating in comparative form the respective figures for the corresponding
     date and period in the preceding fiscal year, prepared in accordance with
     generally accepted accounting principles, consistently applied, and
     accompanied by the certificate of the Trust's independent accountants (who
     shall be acceptable to Financial Security) and by the certificate 
     specified in Section 2.02(c) hereof.

        (ii)  QUARTERLY FINANCIAL STATEMENTS.  As soon as available, and in 
     any event within 45 days after the close of each of the first three 
     quarters of each fiscal year of the Trust, the unaudited balance sheets 
     of the Trust as of the end of such quarter and the unaudited statements 
     of income, changes in equityowners' equity and cash flows of the Trust 
     for the portion of the fiscal year then ended, all in reasonable detail 
     and stating in comparative form the respective figures for the 
     corresponding date and period in the preceding fiscal year, prepared in 
     accordance with generally accepted accounting principles consistently 
     applied (subject to normal year-end adjustments), and accompanied by the 
     certificate specified in Section 2.02(c) hereof.

       (iii)  ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof, copies of 
     any reports or comment letters submitted to the Trust by its independent 
     accountants in connection with any examination of the financial 
     statements of the Trust.

        (iv)  CERTAIN INFORMATION.  Not less than ten days prior to the date 
     of filing with the IRS of any tax return or amendment thereto, copies of 
     the proposed form of such return or amendment and, promptly after the 
     filing or sending thereof, (i) copies of each tax return and amendment 
     thereto that the Trust files with the IRS and (ii) copies of all 
     financial statements, reports, and registration statements which the 
     Trust files with, or delivers to, any federal government agency, 
     authority or body which supervises the issuance of securities by the 
     Trust.

         (v)  OTHER INFORMATION.  Promptly upon the request of Financial 
     Security, copies of all schedules, financial statements or other similar 
     reports delivered to or by the Trust pursuant to the terms of this 
     Agreement and the other Transaction Documents and such other data as 
     Financial Security may reasonably request.

         (c)  COMPLIANCE CERTIFICATE.  The Trust shall deliver to Financial 
     Security and, upon request, any Noteholder, concurrently with the 
     delivery of the financial statements required pursuant to Section 
     2.02(b)(i)  and (ii) hereof, a certificate signed by an Authorized 
     Officer of the Administrator stating that:


                                      11
<PAGE>

         (i)  a review of the Trust's performance under the Transaction 
     Documents during such period has been made under such officer's
     supervision;

        (ii)  to the best of such individual's knowledge following reasonable 
     inquiry, no Default or Event of Default has occurred and is continuing 
     or, if a Default or Event of Default has occurred and is continuing, 
     specifying the nature thereof and, if the Trust has a right to cure 
     pursuant to Section 5.01, stating in reasonable detail the steps, if 
     any, being taken by the Trust to cure such Default or Event of Default 
     or to otherwise comply with the terms of the agreement or agreements to 
     which such Default or Event of Default relates; and

       (iii)  The financial reports submitted in accordance with Section 
     2.02(b)(i) or (ii) hereof, as applicable, are complete and correct in 
     all material respects and present fairly the financial condition and 
     results of operations of the Trust as of the dates and for the periods 
     indicated, in accordance with generally accepted accounting principles 
     consistently applied (subject as to interim statements to normal 
     year-end adjustments).

         (d)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. 
The Trust shall, upon the request of Financial Security, permit Financial 
Security or its authorized agents (i) to inspect the books and records of 
the Trust as they may relate to the Notes, the Receivables and the Other 
Trust Property, the obligations of the Trust under the Transaction Documents, 
the Trust's business and the Transaction and (ii) to discuss the affairs, 
finances and accounts of the Trust with any of its personnel and 
representatives, including its Independent Accountants.  Such inspections and 
discussions shall be conducted during normal business hours and shall not 
unreasonably disrupt the business of the Trust.  The books and records of the 
Trust will be maintained at the address of the Trust designated herein for 
receipt of notices, unless the Trust shall otherwise advise the parties 
hereto in writing.

         (e)  NOTICE OF MATERIAL EVENTS.  The Trust shall promptly inform 
Financial Security in writing of the occurrence of any of the following:

         (i)  the submission of any claim or the initiation of any legal 
     process, litigation or administrative or judicial investigation against 
     the Trust involving potential damages or penalties in an uninsured 
     amount in excess of $100,000 in any one instance or $500,000 in the 
     aggregate;

        (ii)  any change in the location of Trust's principal office or any 
     change in the location of the Trust's books and records;

       (iii)  the occurrence of any Default or Event of Default;

        (iv)  the commencement or threat of any rule making or disciplinary 
     proceedings or any proceedings instituted by or against the Trust in any 
     federal, state or local court or before any governmental body or agency, 
     or before any arbitration board, or the promulgation of any proceeding 
     or any proposed or final rule which, if adversely determined, would 
     result in a Material Adverse Change with respect to the Trust;


                                      12
<PAGE>

         (v)  the commencement of any proceedings by or against the Trust 
     under any applicable bankruptcy, reorganization, liquidation, 
     rehabilitation, insolvency or other similar law now or hereafter in 
     effect or of any proceeding in which a receiver, liquidator, 
     conservator, trustee or similar official shall have been, or may be, 
     appointed or requested for the Trust or any of its assets;

        (vi)  the receipt of notice that (A) the Trust is being placed under 
     regulatory supervision, (B) any license, permit, charter, registration or 
     approval necessary for the conduct of the Trust's business is to be, or 
     may be, suspended or revoked, or (C) the Trust is to cease and desist any 
     practice, procedure or policy employed by the Trust in the conduct of its 
     business, and such cessation may result in a Material Adverse Change with 
     respect to the Trust; or

       (vii)  any other event, circumstance or condition that has resulted, or 
     has a material possibility of resulting, in a Material Adverse Change in 
     respect of the Trust.

         (f)  FURTHER ASSURANCES.  The Trust will file all necessary 
financing statements, assignments or other instruments, and any amendments or 
continuation statements relating thereto, necessary to be kept and filed in 
such manner and in such places as may be required by law to preserve and 
protect fully the Lien and security interest in, and all rights of the 
Indenture Collateral Agent with respect to the Indenture Property, under the 
Indenture.  In addition, the Trust shall, upon the request of Financial 
Security (so long as no Insurer Default has occurred and is continuing), from 
time to time, execute, acknowledge and deliver and, if necessary, file such 
further instruments and take such further action as may be reasonably 
necessary to effectuate the intention, performance and provisions of the 
Transaction Documents to which the Trust is a party or to protect the 
interest of the Indenture Collateral Agent in the Indenture Property under 
the Indenture. The Trust agrees to cooperate with the Rating Agencies in 
connection with any review of the Transaction which may be undertaken by the 
Rating Agencies after the date hereof.

         (g)  MAINTENANCE OF LICENSES.  The Trust shall maintain all 
licenses, permits, charters and registrations which are material to the 
performance by the Trust of its obligations under this Agreement and each 
other Transaction Document to which the Trust is a party or by which the 
Trust is bound.

         (h)  RETIREMENT OF NOTES.  The Trust shall, upon retirement of the 
Notes, furnish to Financial Security a notice of such retirement, and, upon 
such retirement and the expiration of the term of the Note Policy, surrender 
the Note Policy to Financial Security for cancellation.

         (i)  DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect to 
the Notes shall clearly disclose that the Note Policy is not covered by the 
property/casualty insurance security fund specified in Article 76 of the New 
York Insurance Law.  In addition, each Prospectus delivered with respect to 
the Notes which include financial statements of Financial Security prepared 
in accordance with generally accepted accounting principles (other than a 
Prospectus that only incorporates such financial statements by reference) 
shall include the following statement immediately preceding such financial 
statements:


                                      13
<PAGE>

         The New York State Insurance Department recognizes only statutory 
         accounting practices for determining and reporting the financial 
         condition and results of operations of an insurance company, for 
         determining its solvency under the New York Insurance Law, and for 
         determining whether its financial condition warrants the payment of 
         a dividend to its stockholders.  No consideration is given by the 
         New York State Insurance Department to financial statements prepared 
         in accordance with generally accepted accounting principles in making 
         such determinations.

         (j)  SPECIAL PURPOSE ENTITY.

         (i)  The Trust shall conduct its business solely in its own name 
     through its duly authorized officers or agents so as not to mislead 
     others as to the identity of the entity with which those others are 
     concerned, and particularly will use its best efforts to avoid the 
     appearance of conducting business on behalf of Arcadia Financial, the 
     Seller, or any other Affiliates thereof or that the assets of the Trust 
     are available to pay the creditors of Arcadia Financial, the Seller, or 
     any other Affiliates thereof. Without limiting the generality of the 
     foregoing, all oral and written communications, including, without 
     limitation, letters, invoices, purchase orders, contracts, statements 
     and loan applications, will be made solely in the name of the Trust.

        (ii)  The Trust shall maintain trust records and books of account 
     separate from those of Arcadia Financial, the Seller and Affiliates of any
     of them.

       (iii)  The Trust shall obtain proper authorization from its equity 
     owners of all trust action requiring such authorization, and copies of 
     each such authorization and the minutes or other written summary of each 
     such meeting shall be delivered to Financial Security within two weeks 
     of such authorization or meeting as the case may be.

        (iv)  Although the organizational expenses of the Trust have been 
     paid by Arcadia Financial, operating expenses and liabilities of the 
     Trust shall be paid from its own funds.

         (v)  The annual financial statements of the Trust shall disclose the 
     effects of the Trust's transactions in accordance with generally 
     accepted accounting principles and shall disclose that the assets of the 
     Trust are not available to pay creditors of Arcadia Financial, the 
     Seller or any Affiliate of any of them.

        (vi)  The resolutions, agreements and other instruments of the Trust 
     underlying the transactions described in this Agreement and in the other 
     Transaction Documents shall be continuously maintained by the Trust as 
     official records of the Trust separately identified and held apart from 
     the records of Arcadia Financial, the Seller and each Affiliate of any 
     of them.


                                      14
<PAGE>

       (vii)  The Trust shall maintain an arm's-length relationship with 
     Arcadia Financial, the Seller and each Affiliate of any of them and will 
     not hold itself out as being liable for the debts of any such Person.

      (viii)  The Trust shall keep its assets and its liabilities wholly 
     separate from those of all other entities, including, but not limited 
     to, Arcadia Financial, the Seller and each Affiliate of any of them 
     except, in each case, as contemplated by the Transaction Documents.

         (k)  CLOSING DOCUMENTS.  The Trust shall provide or cause to be 
provided to Financial Security an executed original copy of each document 
executed in connection with the Transaction within 10 days after the Closing 
Date, except that the Seller shall cause a copy of the Trust Agreement, the 
Sale and Servicing Agreement, the Series 1998-B Supplement, the Indenture, 
the Administration Agreement and each Transaction Document to which Financial 
Security is a party to be provided to Financial Security on the Closing Date.

         (l)  TAX MATTERS.  The Trust will take all actions necessary to 
ensure that, for federal and state income tax purposes, the Trust is not 
taxable as an association (or publicly traded partnership) or taxable as a 
corporation.

         (m)  SECURITIES LAWS.  The Trust shall comply in all material 
respects with all applicable provisions of state and federal securities laws, 
including blue sky laws and the Securities Act, the Exchange Act and the 
Investment Company Act and all rules and regulations promulgated thereunder 
for which non-compliance would result in a Material Adverse Change with 
respect to the Trust.

         (n)  INCORPORATION OF COVENANTS.  The Trust agrees to comply with 
each of the covenants of the Trust set forth in the Transaction Documents and 
hereby incorporates such covenants by reference as if each were set forth 
herein.

         Section 2.03   NEGATIVE COVENANTS OF THE TRUST .  The Trust hereby 
agrees that during the Term of this Agreement, unless Financial Security 
shall otherwise give its prior express written consent:

         (a)  WAIVER; AMENDMENTS; ETC.  The Trust shall not waive, modify, 
amend, supplement or consent to any waiver, modification, amendment of or 
supplement to, any of the provisions of the Certificate of Trust, the Trust 
Agreement or any of the other Transaction Documents unless, if no Insurer 
Default shall have occurred and be continuing, Financial Security shall have 
consented thereto in writing.

         (b)  CREATION OF INDEBTEDNESS; GUARANTEES.  The Trust shall not 
create, incur, assume or suffer to exist any indebtedness or assume, 
guarantee, endorse or otherwise be or become directly or contingently liable 
for the obligations of any Person by, among other things, agreeing to 
purchase any obligation of another Person, agreeing to advance funds to such 
Person or causing or assisting such Person to maintain any amount of capital, 
except as contemplated by the Transaction Documents.


                                      15
<PAGE>

         (c)  SUBSIDIARIES.  The Trust shall not form, or cause to be formed, 
any Subsidiaries.

         (d)  NO LIENS.  The Trust shall not, except as contemplated by the 
Transaction Documents create, incur, assume or suffer to exist any Lien of 
any nature upon or with respect to any of its properties or assets, now owned 
or hereafter acquired, or sign or file under the Uniform Commercial Code of 
any jurisdiction any financing statement that names the Trust as debtor, or 
sign any security agreement authorizing any secured party thereunder to file 
such a financing statement.

         (e)  IMPAIRMENT OF RIGHTS.  The Trust shall not take any action, or 
fail to take any action, if such action or failure to take action may 
interfere with the enforcement of any rights under the Transaction Documents 
that are material to the rights, benefits or obligations of the Indenture 
Trustee, the Noteholders or Financial Security.

         (f)  NO MERGERS.  The Trust shall not consolidate with or merge into 
any Person or transfer all or any material amount of its assets to any Person 
(except as contemplated by the Transaction Documents) or liquidate or 
dissolve.

         (g)  ERISA.  The Trust shall not contribute or incur any obligation 
to contribute to, or incur any liability in respect of, any Plan or 
Multiemployer Plan.

         (h)  OTHER ACTIVITIES.  The Trust shall not:

         (i)  sell, pledge, transfer, exchange or otherwise dispose of any of 
     its assets except as permitted under the Transaction Documents; or

        (ii)  engage in any business or activity except as contemplated by the 
     Transaction Documents and as permitted by its Certificate of Trust.

         (i)  INSOLVENCY.  The Trust shall not commence any case, proceeding 
or other action (A) under any existing or future law of any jurisdiction, 
domestic or foreign, relating to bankruptcy, insolvency, reorganization or 
relief of debtors, seeking to have an order for relief entered with respect 
to it, or seeking reorganization, arrangement, adjustment, winding-up, 
liquidation, dissolution, consolidation or other relief with respect to it or 
(B) seeking appointment of a receiver, trustee, custodian or other similar 
official for it or for all or any substantial part of its assets or make a 
general assignment for the benefit of its creditors. The Trust shall not take 
any action in furtherance of, or indicating the consent to, approval of, or 
acquiescence in any of the acts set forth above.  The Trust shall not admit 
in writing its inability to pay its debts.

         (j)  SUCCESSOR PARTIES.  The Trust will not remove or replace, or 
cause to be removed or replaced, the Servicer, the Indenture Trustee, the 
Owner Trustee or the Administrator.


                                      16

<PAGE>

         Section 2.04   REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL 
AND THE SELLER.  Each of Arcadia Financial and the Seller represent and 
warrant as of the date hereof and as of the Closing Date, as follows:

         (a)  DUE ORGANIZATION AND QUALIFICATION.  The Seller is a 
corporation duly organized and validly existing and in good standing under 
the laws of the State of Delaware, with power and authority to own its 
properties and to conduct its business.  The Seller is duly qualified to do 
business, is in good standing and has obtained all necessary licenses, 
permits, charters, registrations and approvals (together, "approvals") 
necessary for the conduct of its business as currently conducted and as 
described in the Prospectus and the performance of its obligations under the 
Transaction Documents, in each jurisdiction in which the failure to be so 
qualified or to obtain such approvals would render the Receivables in such 
jurisdiction or any Transaction Document unenforceable in any respect or 
would otherwise have a material adverse effect upon the Transaction.

         (b)  POWER AND AUTHORITY.  The Seller has all necessary corporate 
power and authority to conduct its business as currently conducted and as 
described in the Prospectus, to execute, deliver and perform its obligations 
under this Agreement and each other Transaction Document to which the Seller 
is a party and to carry out the terms of each such agreement, and has full 
power and authority to sell and assign the Receivables and the Other Trust 
Property to the Trust and has duly authorized such sale and assignment to the 
Trust by all necessary corporate action.

         (c)  DUE AUTHORIZATION.  The execution, delivery and performance of 
this Agreement and each other Transaction Document to which the Seller is a 
party has been duly authorized by all necessary corporate action on the part 
of the Seller and does not require any additional approvals or consents or 
other action by or any notice to or filing with any Person by or on behalf of 
the Seller, including, without limitation, any governmental entity or the 
Seller's stockholder.

         (d)  NONCONTRAVENTION.  None of the execution and delivery of this 
Agreement and each other Transaction Document to which the Seller is a party, 
the consummation of the Transaction or the satisfaction of the terms and 
conditions of this Agreement and each other Transaction Document to which the 
Seller is a party,

         (i)    conflicts with or results in any breach or violation of any 
     provision of the charter or bylaws of the Seller or any law, rule, 
     regulation, order, writ, judgment, injunction, decree, determination or 
     award currently in effect having applicability to the Seller or any of 
     its properties, including regulations issued by an administrative agency 
     or other governmental authority having supervisory powers over the 
     Seller,

         (ii)   constitutes a default by the Seller under or a breach of any 
     provision of any loan agreement, mortgage, indenture or other agreement 
     or instrument to which the Seller is a party or by which it or any of 
     its properties is or may be bound or affected, or


                                       17
<PAGE>

         (iii)  results in or requires the creation of any Lien upon or in 
     respect of any of the Seller's assets except as otherwise expressly 
     contemplated by the Transaction Documents.

         (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action, 
proceeding or investigation pending, or, to the Seller's or Arcadia 
Financial's best knowledge, threatened, before any court, regulatory body, 
administrative agency, arbitrator or governmental agency or instrumentality 
having jurisdiction over the Seller or its properties: (A) asserting the 
invalidity of this Agreement or any other Transaction Document to which the 
Seller is a party, (B) seeking to prevent the issuance of the Notes or the 
consummation of the Transaction, (C) seeking any determination or ruling that 
might materially and adversely affect the validity or enforceability of this 
Agreement or any other Transaction Document to which the Seller is a party, 
(D) which might result in a Material Adverse Change with respect to the 
Seller or (E) which might adversely affect the federal or state tax 
attributes of the Notes or the Trust.

         (f)  VALID AND BINDING OBLIGATIONS.  Each of the Transaction 
Documents to which the Seller is a party, when executed and delivered by the 
Seller, and assuming due authorization, execution and delivery by the other 
parties thereto, will constitute the legal, valid and binding obligation of 
the Seller enforceable in accordance with its terms, except as such 
enforceability may be limited by bankruptcy, insolvency, reorganization, 
moratorium or other similar laws affecting creditors' rights generally and 
general equitable principles. The Notes, when executed, authenticated and 
delivered in accordance with the Indenture, will be entitled to the benefits 
of the Indenture and will constitute legal, valid and binding obligations of 
the Trust, enforceable in accordance with their terms.

         (g)  NO CONSENTS.  No consent, license, approval or authorization 
from, or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by the Seller of this Agreement or of any other 
Transaction Document to which the Seller is a party, except (in each case) 
such as have been obtained and are in full force and effect.

         (h)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy 
employed or proposed to be employed by the Seller in the conduct of its 
business violates any law, regulation, judgment, agreement, order or decree 
applicable to the Seller which, if enforced, would result in a Material 
Adverse Change with respect to the Seller.

         (i)  GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY 
INTEREST. Immediately prior to the sale of the Initial Receivables and 
related Other Trust Property to the Trust pursuant to the Sale and Servicing 
Agreement, the Seller was the owner of, and had good and marketable title to, 
such property free and clear of all Liens and Restrictions on 
Transferability, and had full right, corporate power and lawful authority to 
assign, transfer and pledge the Initial Receivables and the related Other 
Trust Property.  The Sale and Servicing Agreement constitutes a valid sale, 
transfer and assignment of the Other Trust Property to the Trust enforceable 
against creditors of


                                       18
<PAGE>

and purchasers of the Seller.  In the event that, in contravention of the 
intention of the parties, the transfer of the Other Trust Property by the 
Seller to the Trust is characterized as other than a sale, such transfer 
shall be characterized as a secured financing, and the Trust shall have a 
valid and perfected first priority security interest in the Other Trust 
Property free and clear of all Liens and Restrictions on Transferability.

         (j)  ACCURACY OF INFORMATION.  Neither the Transaction Documents nor 
any documents, agreements, instruments, schedules, certificates, statements, 
cash flow schedules, number runs or other writings or data (collectively, the 
"Documents") furnished to Financial Security by the Seller or Arcadia 
Financial with respect to either of them, their Subsidiaries, the Receivables 
or the Transaction contain any statement of a material fact which was untrue 
or misleading in any material respect when made (except insofar as any 
Document was corrected or superseded by a subsequent Document and Financial 
Security has not detrimentally relied on the original Document). There is no 
fact known to the Seller or Arcadia Financial which has a material 
possibility of causing a Material Adverse Change with respect to the Seller 
or Arcadia Financial, or which has a material possibility of impairing the 
value or marketability of the Receivables, taken as a whole, or decreasing 
the probability that amounts due in respect of the Receivables will be 
collected as due.  Since the furnishing of the Transaction Documents, there 
has been no change or any development or event involving a prospective change 
known to the Seller or Arcadia Financial which would render any 
representation or warranty or other statement made by either of them in any 
of the Transaction Documents untrue or misleading in a material respect.

         (k)  COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Seller is not 
required to be registered as an "investment company" under the Investment 
Company Act.

         (l)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  The 
representations and warranties of the Seller set forth in the Transaction 
Documents are (in each case) true and correct as if set forth herein.

         (m)  SPECIAL PURPOSE ENTITY.

         (i)    The capital of the Seller is adequate for the business and 
     undertakings of the Seller.

         (ii)   Other than with respect to the ownership by Arcadia Financial 
     of the stock of the Seller and as provided in the Previous Series 
     Transaction Documents, the Purchase Agreement, the Sale and Servicing 
     Agreement, and the Spread Account Agreement, the Seller is not engaged 
     in any business transactions with Arcadia Financial or any Affiliate of 
     Arcadia Financial.

         (iii)  At least one director of the Seller shall be a person who is 
     not, and will not be, a director, officer, employee or holder of any 
     equity securities of Arcadia Financial or any of its Affiliates or 
     Subsidiaries.


                                       19
<PAGE>

         (iv)   The Seller's funds and assets are not, and will not be, 
     commingled with the funds of any other Person, except as provided in the 
     Transaction Documents.

         (v)    The by-laws of the Seller require it to maintain (A) correct 
     and complete minute books and records of account, and (B) minutes of the 
     meetings and other proceedings of its shareholders and board of 
     directors.

         (n)  SOLVENCY; FRAUDULENT CONVEYANCE.  The Seller is solvent and 
will not be rendered insolvent by the Transaction and, after giving effect to 
such Transaction, the Seller will not be left with an unreasonably small 
amount of capital with which to engage in its business.  The Seller does not 
intend to incur, or believe that it has incurred, debts beyond its ability to 
pay such debts as they mature.  The Seller does not contemplate the 
commencement of insolvency, bankruptcy, liquidation or consolidation 
proceedings or the appointment of a receiver, liquidator, conservator, 
trustee or similar official in respect of the Seller or any of its assets.  
The amount of consideration being received by the Seller upon the sale of the 
Initial Receivables and related Other Trust Property and contemplated to be 
received upon the Sale of the Subsequent Receivables and related Other Trust 
Property constitutes reasonably equivalent value and fair consideration for 
interest in such Receivables and such Other Trust Property.  The Seller is 
not transferring the Other Trust Property to the Trust, as provided in the 
Transaction Documents, with any intent to hinder, delay or defraud any of the 
Seller's creditors.

         (o)  REGISTRATION STATEMENT; PROSPECTUS.  The Seller has filed with 
the Securities and Exchange Commission (the "Commission") a registration 
statement on Form S-3 (No. 333-48141), including a preliminary prospectus and 
prospectus supplement for the registration of the Notes under the Securities 
Act, has filed such amendments thereto, and such amended preliminary 
prospectuses and prospectus supplements as may have been required to the date 
hereof, and will file such additional amendments thereto and such amended 
prospectuses and prospectus supplements as may hereafter be required. Such 
registration statement (as amended, if applicable) and the prospectus, 
together with the prospectus supplement relating to the Notes, constituting a 
part thereof (including in each case all documents, if any, incorporated by 
reference therein and the information, if any, deemed to be part thereof 
pursuant to the rules and regulations of the Commission under the Securities 
Act (the "Rules and Regulations"), as from time to time amended or 
supplemented pursuant to the Securities Act or otherwise) are hereinafter 
referred to as the "Registration Statement" and the "Prospectus," 
respectively, except that if any revised prospectus or prospectus supplement 
shall be provided by the Seller for use in connection with the offering of 
the Notes which differs from the Prospectus filed with the Commission 
pursuant to Rule 424 of the Rules and Regulations (whether or not such 
revised prospectus is required to be filed by the Seller pursuant to Rule 424 
of the Rules and Regulations), the term "Prospectus" shall refer to such 
revised prospectus and prospectus supplement from and after the time it is 
first provided to the Underwriters for such use. The Registration Statement 
at the time they became effective complied, and at each time that the 
Prospectus is provided to the Underwriters for use in connection with the 
offering or sale of any Note will comply, in all material respects with the 
requirements of the Securities Act and the Rules and Regulations.  The 
Registration Statement and the Prospectus at the time the Registration 
Statement became effective did not and on the date hereof does not, contain 
an


                                       20
<PAGE>

untrue staement of a material fact or omit to state a material fact required 
to be stated therein or necessary to make the statements therein not 
misleading and the Prospectus at the time it was first provided to the 
Underwriters for use in connection with the offering of the Notes did not, 
and on the date hereof does not, contain any untrue statement of a material 
fact or omit to state a material fact necessary to make the statements 
therein in light of the circumstances under which they were made not 
misleading, except that the representations and warranties in this 
subparagraph shall not apply to statements in or omissions from the 
Registration Statement or the Prospectus or any preliminary prospectus made 
in reliance upon information furnished to the Seller in writing by Financial 
Security expressly for use therein or the financial statements (including the 
related notes thereto) of Financial Security.

         (p)  ERISA.  The Seller is in compliance with ERISA and has not 
incurred and does not reasonably expect to incur any liabilities to the PBGC 
under ERISA in connection with any Plan or Multiemployer Plan or to 
contribute now or in the future in respect of any Plan or Multiemployer Plan.

         (q)  PLEDGE OF SHARES.  The shares of stock of the Seller which have 
been pledged pursuant to the Stock Pledge Agreement constitute all of the 
issued and outstanding shares of the Seller.

         (r)  PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing 
Date, the Lien and security interest in favor of the Indenture Collateral 
Agent with respect to Indenture Property will be perfected by the filing of 
financing statements on Form UCC-1 in each jurisdiction where such recording 
or filing is necessary for the perfection thereof, the delivery of the 
Receivable Files for the Receivables to the Custodian, and the establishment 
of the Collection Account, the Subcollection Account, the Lockbox Account, 
the Pre-Funding Account, the Reserve Account and the Note Distribution 
Account in accordance with the provisions of the Transaction Documents, and 
no other filings in any jurisdiction or any other actions (except as 
expressly provided herein) are necessary to perfect the Collateral Agent's 
Lien on and security interest in the Collateral as against any third parties.

         (s)  SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the 
retention of funds in the Accounts and the acquisition of Eligible 
Investments in accordance with the Transaction Documents, such funds and 
Eligible Investments will be subject to a valid and perfected, first priority 
security interest in favor of the Collateral Agent on behalf of the Indenture 
Trustee (on behalf of the Noteholders) and Financial Security.

         Section 2.05   AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE 
SELLER.  Each of Arcadia Financial and the Seller hereby agree that during 
the Term of the Agreement, unless Financial Security shall otherwise 
expressly consent in writing:

         (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Seller 
will comply with all terms and conditions of this Agreement and each other 
Transaction Document to which it is a party and with all material 
requirements of any law, rule or regulation applicable to it.  The Seller 
will not cause or permit to become effective any amendment to or modification 
of any of the Transaction Documents to which it is a party unless (i) (so 
long as no Insurer Default shall


                                       21
<PAGE>

have occurred and be continuing) Financial Security shall have previously 
approved in writing the form of such amendment or modification or (ii) if an 
Insurer Default shall have occurred and be continuing, such amendment would 
not adversely affect the interests of Financial Security.  The Seller shall 
not take any action or fail to take any action that would interfere with the 
enforcement of any rights under this Agreement or the other Transaction 
Documents.

         (b)  CORPORATE EXISTENCE.  The Seller shall maintain its corporate 
existence and shall at all times continue to be duly organized under the laws 
of Delaware and duly qualified and duly authorized (as described in Sections 
2.04(a), (b) and (c) hereof) and shall conduct its business in accordance 
with the terms of its corporate charter and bylaws.

         (c)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. 
The Seller shall keep or cause to be kept in reasonable detail books and 
records of account of the Seller's assets and business, and shall clearly 
reflect therein the transfer of the Receivables and the Other Trust Property 
to the Trust and the sale of the Receivables as a sale to the Trust of the 
Seller's interest in the Receivables and the Other Trust Property.  The 
Seller shall furnish to Financial Security, simultaneously with the delivery 
of such documents to the Trustee or the Noteholders, as the case may be, 
copies of all reports, certificates, statements, financial statements or 
notices furnished to the Trustee or the Noteholders, as the case may be, 
pursuant to the Transaction Documents.  The Seller shall furnish to Financial 
Security as soon as available, and in any event within 90 days after the 
close of each fiscal year of the Seller, the unaudited balance sheet of the 
Seller as of the end of such fiscal year and the unaudited statements of 
income, changes in shareholders' equity and cash flows of the Seller for such 
fiscal year, all in reasonable detail and stating in comparative form the 
respective figures for the preceding fiscal year, prepared in accordance with 
generally accepted accounting principles, consistently applied.

         (d)  COMPLIANCE CERTIFICATE.  The Seller shall deliver to Financial 
Security, within 90 days after the close of each fiscal year of the Seller, a 
certificate signed by an Authorized Officer of the Seller stating that:

         (i)    a review of the Seller's performance under the Transaction 
     Documents during such period has been made under such officer's 
     supervision; and

         (ii)   to the best of such individual's knowledge following 
     reasonable inquiry, no Default or Event of Default has occurred, or if a 
     Default or Event of Default has occurred, specifying the nature thereof 
     and, if the Seller has or had a right to cure pursuant to Section 5.01, 
     stating in reasonable detail the steps, if any, taken or being taken by 
     the Seller to cure such Default or Event of Default or to otherwise 
     comply with the terms of the Transaction Document to which such Default 
     or Event of Default relates.

         (iii)  the financial reports submitted in accordance with Section 
     2.05(c) hereof, are complete and correct in all material respects and 
     present fairly the financial condition and results of operations of the 
     Seller as of the dates and for the periods indicated, in accordance with 
     generally accepted accounting principles consistently applied.


                                       22
<PAGE>

         (e)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. 
The Seller shall, upon the request of Financial Security, permit Financial 
Security or its authorized agents (i) to inspect the books and records of 
the Seller as they may relate to the Notes, the Receivables and the Other 
Trust Property, the obligations of the Seller under the Transaction 
Documents, the Seller's business and the Transaction and (ii) to discuss the 
affairs, finances and accounts of the Seller with any of its officers, 
directors and representatives, including its Independent Accountants. Such 
inspections and discussions shall be conducted during normal business hours 
and shall not unreasonably disrupt the business of the Seller.  The books and 
records of the Seller will be maintained at the address of the Seller 
designated herein for receipt of notices, unless the Seller shall otherwise 
advise the parties hereto in writing.

         (f)  NOTICE OF MATERIAL EVENTS.  The Seller shall promptly inform 
Financial Security in writing of the occurrence of any of the following:

         (i)    the submission of any claim or the initiation of any legal 
     process, litigation or administrative or judicial investigation against 
     the Seller involving potential damages or penalties in an uninsured 
     amount in excess of $5,000 in any one instance or $25,000 in the 
     aggregate;

         (ii)   any change in the location of Seller's principal office or 
     any change in the location of the Seller's books and records;

         (iii)  the occurrence of any Default or Event of Default;

         (iv)   the commencement or threat of any rule making or disciplinary 
     proceedings or any proceedings instituted by or against the Seller in 
     any federal, state or local court or before any governmental body or 
     agency, or before any arbitration board, or the promulgation of any 
     proceeding or any proposed or final rule which, if adversely determined, 
     would result in a Material Adverse Change with respect to the Seller or 
     the Trust;

         (v)    the commencement of any proceedings by or against the Seller 
     under any applicable bankruptcy, reorganization, liquidation, 
     rehabilitation, insolvency or other similar law now or hereafter in 
     effect or of any proceeding in which a receiver, liquidator, 
     conservator, trustee or similar official shall have been, or may be, 
     appointed or requested for the Seller or any of its assets;

         (vi)   the receipt of notice that (A) the Seller is being placed 
     under regulatory supervision, (B) any license, permit, charter, 
     registration or approval necessary for the conduct of the Seller's 
     business is to be, or may be, suspended or revoked, or (C) the Seller is 
     to cease and desist any practice, procedure or policy, employed by the 
     Seller in the conduct of its business, and such cessation may result in 
     a Material Adverse Change with respect to the Seller or the Trust; or


                                       23
<PAGE>

         (vii)  any other event, circumstance or condition that has resulted, 
     or has a material possibility of resulting, in a Material Adverse Change 
     in respect of the Seller, or the Trust.

         (g)  FURTHER ASSURANCES.  The Seller will file all necessary 
financing statements, assignments or other instruments, and any amendments or 
continuation statements relating thereto, necessary to be kept and filed in 
such manner and in such places as may be required by law to preserve and 
protect fully the Lien and security interest in, and all rights of the Trust 
with respect to Other Trust Property, under the Sale and Servicing Agreement. 
In addition, the Seller shall, upon the request of Financial Security (so 
long as no Insurer Default has occurred and is continuing), from time to 
time, execute, acknowledge and deliver and, if necessary, file such further 
instruments and take such further action as may be reasonably necessary to 
effectuate the intention, performance and provisions of the Transaction 
Documents to which the Seller is a party or to protect the interest of the 
Trust in the Receivables under the Sale and Servicing Agreement. The Seller 
agrees to cooperate with the Rating Agencies in connection with any review of 
the Transaction which may be undertaken by the Rating Agencies after the date 
hereof.

         (h)  MAINTENANCE OF LICENSES.  The Seller shall maintain all 
licenses, permits, charters and registrations which are material to the 
performance by the Seller of its obligations under this Agreement and each 
other Transaction Document to which the Seller is a party or by which the 
Seller is bound.

         (i)  DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect to 
the Notes shall clearly disclose that the Note Policy is not covered by the 
property/casualty insurance security fund specified in Article 76 of the New 
York Insurance Law.  In addition, each Prospectus delivered with respect to 
the Notes which includes financial statements of Financial Security prepared 
in accordance with generally accepted accounting principles (other than a 
Prospectus that only incorporates such financial statements by reference) 
shall include the following statement immediately preceding such financial 
statements:

         The New York State Insurance Department recognizes only 
         statutory accounting practices for determining and 
         reporting the financial condition and results of 
         operations of an insurance company, for determining its 
         solvency under the New York Insurance Law, and for 
         determining whether its financial condition warrants the 
         payment of a dividend to its stockholders.  No 
         consideration is given by the New York State Insurance 
         Department to financial statements prepared in accordance 
         with generally accepted accounting principles in making 
         such determinations.

         (j)  SPECIAL PURPOSE ENTITY.

         (i)   The Seller shall conduct its business solely in its own name 
     through its duly authorized officers or agents so as not to mislead 
     others as to the identity of the entity with which those others are 
     concerned, and particularly will use its best efforts to


                                       24
<PAGE>

     avoid the appearance of conducting business on behalf of Arcadia 
     Financial or any other Affiliate thereof or that the assets of the 
     Seller are available to pay the creditors of Arcadia Financial or any 
     Affiliate thereof.  Without limiting the generality of the foregoing, 
     all oral and written communications, including, without limitation, 
     letters, invoices, purchase orders, contracts, statements and loan 
     applications, will be made solely in the name of the Seller.

         (ii)   The Seller shall maintain corporate records and books of 
     account separate from those of Arcadia Financial and the other 
     Affiliates thereof.

         (iii)  The Seller shall obtain proper authorization from its board 
     of directors of all corporate action requiring such authorization, 
     meetings of the board of directors of the Seller shall be held not less 
     frequently than three times per annum and copies of the minutes of each 
     such board meeting shall be delivered to Financial Security within two 
     weeks of such meeting.

         (iv)   The Seller shall obtain proper authorization from its 
     shareholders of all corporate action requiring shareholder approval, 
     meetings of the shareholders of the Seller shall be held not less 
     frequently than one time per annum and copies of each such authorization 
     and the minutes of each such shareholder meeting shall be delivered to 
     Financial Security within two weeks of such authorization or meeting, as 
     the case may be.

         (v)    Although the organizational expenses of the Seller have been 
     paid by Arcadia Financial, operating expenses and liabilities of the 
     Seller shall be paid from its own funds.

         (vi)   The annual financial statements of the Seller shall disclose 
     the effects of the Seller's transactions in accordance with generally 
     accepted accounting principles and shall disclose that the assets of the 
     Seller are not available to pay creditors of Arcadia Financial or any 
     other Affiliate thereof.

         (vii)  The resolutions, agreements and other instruments of the 
     Seller underlying the transactions described in this Agreement and in 
     the other Transaction Documents shall be continuously maintained by the 
     Seller as official records of the Seller separately identified and held 
     apart from the records of Arcadia Financial and each other Affiliate 
     thereof.

         (viii) The Seller shall maintain an arm's-length relationship with 
     Arcadia Financial and the other Affiliates thereof and will not hold 
     itself out as being liable for the debts of Arcadia Financial or any 
     Affiliate thereof.

         (ix)   The Seller shall keep its assets and its liabilities wholly 
     separate from those of all other entities, including, but not limited to 
     Arcadia Financial and the other Affiliates thereof except, in each case, 
     as contemplated by the Transaction Documents.


                                       25
<PAGE>

         (k)  CLOSING DOCUMENTS.  The Seller shall provide or cause to be 
provided to Financial Security an executed original copy of each document 
executed in connection with the Transaction within 10 days after the Closing 
Date, except that the Seller shall cause a copy of the Trust Agreement, the 
Sale and Servicing Agreement, the Series 1998-B Supplement, the Indenture, 
the Administration Agreement and each Transaction Document to which Financial 
Security is a party to be provided to Financial Security on the Closing Date.

         (l)  SUBSEQUENT RECEIVABLES; GOOD TITLE; VALID TRANSFER; ABSENCE OF 
LIENS; SECURITY INTEREST.  Immediately prior to the sale to the Trust 
pursuant to a Subsequent Transfer Agreement, the Seller will be the owner of, 
and shall have good and marketable title to, the Subsequent Receivables 
transferred thereby and the related Other Trust Property free and clear of 
all Liens and Restrictions on Transferability, and shall have full right, 
corporate power and lawful authority to assign, transfer and pledge such 
property.

         (m)  INCORPORATION OF COVENANTS.  The Seller agrees to comply with 
each of the Seller's covenants set forth in the Transaction Documents and 
hereby incorporates such covenants by reference as if each were set forth 
herein.

         Section 2.06   NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE 
SELLER.  Each of Arcadia Financial and the Seller hereby agrees that during 
the Term of this Agreement, unless Financial Security shall otherwise give 
its prior express written consent:

         (a)  WAIVER; AMENDMENTS, ETC.  The Seller shall not waive, modify, 
amend, supplement or consent to any waiver, modification, amendment of or 
supplement to, any of the provisions of any of the Transaction Documents or 
Previous Series Transaction Documents or of its certificate of incorporation 
or by-laws (i) unless, if no Insurer Default shall have occurred and be 
continuing, Financial Security shall have consented thereto in writing or 
(ii) if an Insurer Default shall have occurred and be continuing, which would 
adversely affect the interests of Financial Security.

         (b)  CREATION OF INDEBTEDNESS; GUARANTEES.  The Seller shall not 
create, incur, assume or suffer to exist any indebtedness or assume, 
guarantee, endorse or otherwise be or become directly or contingently liable 
for the obligations of any Person by, among other things, agreeing to 
purchase any obligation of another Person, agreeing to advance funds to such 
Person or causing or assisting such Person to maintain any amount of capital, 
except as contemplated by the Transaction Documents or as contemplated by the 
documents relating to a Series of Notes.

         (c)  SUBSIDIARIES.  The Seller shall not form, or cause to be 
formed, any Subsidiaries.

         (d)  NO LIENS.  The Seller shall not, except as contemplated by the 
Transaction Documents or as contemplated by the documents relating to a 
Series of Notes, create, incur, assume or suffer to exist any Lien of any 
nature upon or with respect to any of its properties or assets, now owned or 
hereafter acquired, or sign or file under the Uniform Commercial Code of any 
jurisdiction any financing statement that names the Seller as debtor, or sign 
any security agreement authorizing any secured party thereunder to file such 
a financing statement.


                                       26
<PAGE>

         (e)  ISSUANCE OF STOCK.  The Seller shall not issue any shares of 
capital stock or rights, warrants or options in respect of its capital stock 
or securities convertible into or exchangeable for its capital stock, other 
than the shares of common stock which have been pledged to Financial Security 
under the Seller Stock Pledge Agreement.

         (f)  IMPAIRMENT OF RIGHTS.  The Seller shall not take any action, or 
fail to take any action, if such action or failure to take action may 
interfere with the enforcement of any rights under the Transaction Documents 
that are material to the rights, benefits or obligations of the Trust, the 
Indenture Trustee, the Noteholders or Financial Security.

         (g)  NO MERGERS.  The Seller shall not consolidate with or merge 
into any Person or transfer all or any material amount of its assets to any 
Person (except as contemplated by the Transaction Documents or the documents 
relating to a Series of Notes).

         (h)  ERISA.  The Seller shall not contribute or incur any obligation 
to contribute to, or incur any liability in respect of, any Plan or 
Multiemployer Plan.

         (i)  OTHER ACTIVITIES.  The Seller shall not:

         (i)  sell, pledge, transfer, exchange or otherwise dispose of any of 
     its assets except as permitted under the Transaction Documents or the
     documents relating to a Series of Notes; or

        (ii)  engage in any business or activity except as contemplated by the 
     Transaction Documents or as contemplated by the documents relating to a
     Series of Notes and as permitted by its certificate of incorporation.

         (j)  INSOLVENCY.  The Seller shall not commence any case, proceeding 
or other action (A) under any existing or future law of any jurisdiction, 
domestic or foreign, relating to bankruptcy, insolvency, reorganization or 
relief of debtors, seeking to have an order for relief entered with respect 
to it, or seeking reorganization, arrangement, adjustment, winding-up, 
liquidation, dissolution, consolidation or other relief with respect to it or 
the Trust or (B) seeking appointment of a receiver, trustee, custodian or 
other similar official for it or for the Trust or for all or any substantial 
part of its assets or the Collateral related to any or all Series, or make a 
general assignment for the benefit of its creditors. The Seller shall not 
take any action in furtherance of, or indicating the consent to, approval of, 
or acquiescence in any of the acts set forth above.  The Seller shall not 
admit in writing its inability to pay its debts.

         (k)  DIVIDENDS.  The Seller shall not declare or make payment of (i) 
any dividend or other distribution on any shares of its capital stock, or 
(ii) any payment on account of the purchase, redemption, retirement or 
acquisition of any option, warrant or other right to acquire shares of its 
capital stock, unless (in each case) at the time of such declaration or 
payment (and after giving effect thereto) no amount payable by the Seller 
under any Transaction Document with respect to any Series is then due and 
owing but unpaid.


                                      27
<PAGE>

         Section 2.07   REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL.  
Arcadia Financial represents and warrants, as of the date hereof and as of 
the Closing Date, as follows:

         (a)  DUE ORGANIZATION AND QUALIFICATION.  Arcadia Financial and each 
of its Subsidiaries is a corporation, duly organized, validly existing and in 
good standing under the laws of the State of its respective incorporation 
with power and authority to own its properties and conduct its business.  
Arcadia Financial and each of its Subsidiaries is duly qualified to do 
business and is in good standing in each jurisdiction in which the failure to 
be so qualified would render any of the Receivables unenforceable in any 
respect or would otherwise have a material adverse effect upon the 
Transaction.  Arcadia Financial and each of its Subsidiaries has obtained all 
licenses, permits, charters, registrations and approvals necessary for the 
conduct of its business as currently conducted and as described in the 
Prospectus and for the performance of its obligations under the Transaction 
Documents.

         (b)  POWER AND AUTHORITY.  Arcadia Financial has all necessary 
corporate power and authority to conduct its business as currently conducted 
and as described in the Prospectus, to execute, deliver and perform its 
obligations under this Agreement and each other Transaction Document to which 
it is a party and to carry out the terms of each such agreement.

         (c)  DUE AUTHORIZATION.  The execution, delivery and performance of 
this Agreement and each other Transaction Document to which Arcadia Financial 
is a party has been duly authorized by all necessary corporate action and 
does not require any additional approvals or consents or other action by or 
any notice to or filing with any Person, including, without limitation, any 
governmental entity or Arcadia Financial's stockholders.

         (d)  NONCONTRAVENTION.  Neither the execution and delivery of this 
Agreement and each other Transaction Document to which Arcadia Financial is a 
party, the consummation of the Transaction, nor the satisfaction of the terms 
and conditions of this Agreement and each other Transaction Document to which 
Arcadia Financial is a party,

         (i)  conflicts with or results in any breach or violation of any 
     provision of the corporate charter or bylaws of Arcadia Financial or any 
     law, rule, regulation, order, writ, judgment, injunction, decree, 
     determination or award currently in effect having applicability to 
     Arcadia Financial or any of its properties, including regulations issued 
     by an administrative agency or other governmental authority having 
     supervisory powers over Arcadia Financial,

        (ii)  constitutes a default by Arcadia Financial under or a breach of 
     any provision of any loan agreement, mortgage, indenture or other 
     agreement or instrument to which Arcadia Financial or any of its 
     Subsidiaries is a party or by which it or any of its or their properties 
     is or may be bound or affected, or

       (iii)  results in or requires the creation of any Lien upon or in 
     respect of any of Arcadia Financial's assets, except as otherwise 
     expressly contemplated by the Transaction Documents.


                                      28
<PAGE>

          (e)  PENDING LITIGATION OR OTHER PROCEEDING.  There is no action, 
proceeding or investigation pending, or, to Arcadia Financial's best 
knowledge, threatened, before any court, regulatory body, administrative 
agency, or other governmental instrumentality having jurisdiction over 
Arcadia Financial or its properties: (A) asserting the invalidity of this 
Agreement or any other Transaction Document to which Arcadia Financial is a 
party, (B) seeking to prevent the issuance of the Notes, or the consummation 
of the Transaction, (C) seeking any determination or ruling that might 
materially and adversely affect the validity or enforceability of, this 
Agreement or any other Transaction Document to which Arcadia Financial is a 
party, (D) which might result in a Material Adverse Change with respect to 
Arcadia Financial or (E) which might adversely affect the federal or state 
tax attributes of the Notes or the Trust.

         (f)  VALID AND BINDING OBLIGATIONS.  The Purchase Agreement 
constitutes a valid sale, transfer, and assignment of the Receivables and 
Other Trust Property to the Seller, enforceable against creditors of and 
purchasers from Arcadia Financial.  Each of the other Transaction Documents 
to which Arcadia Financial is a party when executed and delivered by Arcadia 
Financial, and assuming the due authorization, execution and delivery by the 
other parties thereto, will constitute the legal, valid and binding 
obligation of Arcadia Financial enforceable in accordance with its respective 
terms, except as such enforceability may be limited by bankruptcy, 
insolvency, reorganization, moratorium or other similar laws affecting 
creditors' rights generally and general equitable principles.

         (g)  NO CONSENTS.  No consent, license, approval or authorization 
from, or registration, filing or declaration with, any regulatory body, 
administrative agency, or other governmental instrumentality, nor any 
consent, approval, waiver or notification of any creditor, lessor or other 
non-governmental person, is required in connection with the execution, 
delivery and performance by Arcadia Financial of this Agreement or of any 
other Transaction Document to which Arcadia Financial is a party, except (in 
each case) such as have been obtained and are in full force and effect.

         (h)  FINANCIAL STATEMENTS.  The Financial Statements of Arcadia 
Financial, copies of which have been furnished to Financial Security, (i) 
are, as of the dates and for the periods referred to therein, complete and 
correct in all material respects, (ii) present fairly the financial 
condition and results of operations of Arcadia Financial as of the dates and 
for the periods indicated and (iii) have been prepared in accordance with 
generally accepted accounting principles consistently applied, except as 
noted therein (subject as to interim statements to normal year-end 
adjustments and the absence of notes). Since the date of the most recent 
Financial Statements, there has been no material adverse change in such 
financial condition or results of operations. Except as disclosed in the 
Financial Statements, Arcadia Financial is not subject to any contingent 
liabilities or commitments that, individually or in the aggregate, have a 
reasonable likelihood of causing a Material Adverse Change in respect of 
Arcadia Financial.

         (i)  COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy 
employee or proposed to be employed by Arcadia Financial in the conduct of 
its business violates any law, regulation, judgment, agreement, order or 
decree applicable to Arcadia Financial which, if enforced, would result in a 
Material Adverse Change with respect to Arcadia Financial.


                                      29
<PAGE>

         (j)  TAXES.  Arcadia Financial has, and each of its Subsidiaries 
have, filed all federal and state tax returns and paid all taxes to the 
extent that such taxes have become due.  Any taxes, fees and other 
governmental charges payable by Arcadia Financial in connection with the 
Transaction, the execution and delivery of the Transaction Documents and the 
issuance of the Notes have been paid or shall have been paid at or prior to 
the Closing Date.

         (k)  ERISA.  Arcadia Financial is in compliance with ERISA and has 
not incurred and does not reasonably expect to incur any liabilities to the 
PBGC under ERISA in connection with any Plan or Multiemployer Plan or to 
contribute now or in the future in respect of any Plan or Multiemployer Plan 
except in accordance with the provisions of Section 2.9(e) hereof.

         (l)  INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES.  
Arcadia Financial represents and warrants to Financial Security that the 
representations and warranties of Arcadia Financial set forth in the 
Transaction Documents are (in each case) true and correct as if set forth 
herein.

         Section 2.08  AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL.  Arcadia 
Financial hereby agrees that during the Term of the Agreement, unless 
Financial Security shall otherwise expressly consent in writing:

         (a)  COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  Arcadia 
Financial will comply with all terms and conditions of this Agreement and 
each other Transaction Document to which it is a party and all material 
requirements of any law, rule or regulation applicable to it.  Arcadia 
Financial will not cause or permit to become effective any amendment to or 
modification of any Transaction Document to which it is a party (i)  unless, 
so long as no Insurer Default shall have occurred and be continuing, 
Financial Security shall have previously approved in writing the form of such 
amendment or modification or (ii)  if an Insurer Default shall have occurred 
and be continuing, such amendment would not adversely affect the interests of 
Financial Security. Arcadia Financial shall not take any action or fail to 
take any action that would interfere with the enforcement of any rights under 
this Agreement or the other Transaction Documents.

         (b)  CORPORATE EXISTENCE.  Arcadia Financial shall maintain its 
corporate existence and shall at all times continue to be duly organized 
under the laws of Minnesota and duly qualified and duly authorized (as 
described in Sections 2.07(a), (b) and (c) hereof) and shall conduct its 
business in accordance with the terms of its corporate charter and bylaws.

         (c)  FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION. 
Arcadia Financial shall keep or cause to be kept in reasonable detail books 
and records of account of Arcadia Financial's assets and business.  Arcadia 
Financial, so long as it shall be the Servicer, shall furnish to Financial 
Security, simultaneously with the delivery of such documents to the Owner 
Trustee, Indenture Trustee or the Noteholders, as the case may be, copies of 
all reports, certificates, statements or notices furnished to the Owner 
Trustee, Indenture Trustee or the Noteholders, as the case may be, pursuant 
to the Transaction Documents.  Arcadia Financial shall also furnish or cause 
to be furnished to Financial Security:


                                      30
<PAGE>

         (i)  ANNUAL FINANCIAL STATEMENTS.  As soon as available, and in any 
     event within 90 days after the close of each fiscal year of Arcadia 
     Financial, the audited balance sheets of Arcadia Financial and its 
     subsidiaries as of the end of such fiscal year and the audited 
     consolidated statements of income, changes in shareholders' equity and 
     cash flows of Arcadia Financial for such fiscal year, all in reasonable 
     detail and stating in comparative form the respective figures for the 
     corresponding date and period in the preceding fiscal year, prepared in 
     accordance with generally accepted accounting principles, consistently 
     applied, and accompanied by the certificate of Arcadia Financial's 
     independent accountants (which, so long as no Insurer Default shall have 
     occurred and be continuing, shall be acceptable to Financial Security) 
     and by the certificate specified in Section 2.08(d) hereof.

        (ii)  QUARTERLY FINANCIAL STATEMENTS.  As soon as available, and in 
     any event within 45 days after the close of each of the first three 
     quarters of each fiscal year of Arcadia Financial, the unaudited 
     consolidated balance sheets of Arcadia Financial as of the end of such 
     quarter and the unaudited consolidated statements of income, changes in 
     shareholders' equity and cash flows of Arcadia Financial for the portion 
     of the fiscal year then ended, all in reasonable detail and stating in 
     comparative form the respective figures for the corresponding date and 
     period in the preceding fiscal year, prepared in accordance with 
     generally accepted accounting principles consistently applied (subject 
     to normal year-end adjustments), and accompanied by the certificate 
     specified in Section 2.08(d) hereof.

       (iii)  ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof, copies of 
     any reports submitted to Arcadia Financial by its independent accountants 
     in connection with any examination of the financial statements of Arcadia 
     Financial.

        (iv)  CERTAIN INFORMATION.  Promptly after the filing or sending 
     thereof, copies of all proxy statements, financial statements, reports 
     and registration statements which Arcadia Financial files, or delivers 
     to, the IRS, the Commission, or any other federal government agency, 
     authority or body which supervises the issuance of securities by Arcadia 
     Financial or any national securities exchange.

         (d)  COMPLIANCE CERTIFICATE.  Arcadia Financial shall deliver to 
Financial Security within 90 days after the close of each fiscal year of 
Arcadia Financial, a certificate signed by an Authorized Officer of Arcadia 
Financial stating that:

         (i)  a review of Arcadia Financial's performance under the 
     Transaction Documents during such period has been made under such 
     officer's supervision;

        (ii)  to the best of such individual's knowledge following reasonable 
     inquiry, no Default or Event of Default has occurred, or if a Default or 
     Event of Default has occurred, specifying the nature thereof and, if 
     Arcadia Financial has or had a right to cure pursuant to Section 5.01 
     hereof, stating in reasonable detail the steps, if any, taken or being 
     taken by Arcadia Financial to cure such Default or Event of Default or to 
     otherwise comply 

                                      31
<PAGE>

     with the terms of the Transaction Document to which such Default or Event 
     of Default relates; and

       (iii)  the financial statements submitted in accordance with Section 
     2.08(c) hereof, as applicable, are complete and correct in all material 
     respects and present fairly the financial condition and results of 
     operations of Arcadia Financial as of the dates and for the periods 
     indicated, in accordance with generally accepted accounting principles 
     consistently applied (subject as to interim statements to normal 
     year-end adjustments and the absence of notes).

         (e)  ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS. 
Arcadia Financial shall, upon the request of Financial Security, permit 
Financial Security or its authorized agents (i) to inspect the books and 
records of Arcadia Financial as they may relate to the Notes, the 
Receivables, the obligations of Arcadia Financial as Servicer under the 
Transaction Documents, its business and the Transaction and (ii) to discuss 
the affairs, finances and accounts of Arcadia Financial with any of its 
officers, directors and representatives, including its Independent 
Accountants. Such inspections and discussions shall be conducted during 
normal business hours and shall not unreasonably disrupt the business of 
Arcadia Financial.  The books and records of Arcadia Financial will be 
maintained at the address of Arcadia Financial designated herein for receipt 
of notices, unless Arcadia Financial shall otherwise advise the parties 
hereto in writing.

         (f)  NOTICE OF MATERIAL EVENTS.  Arcadia Financial shall promptly 
inform Financial Security in writing of the occurrence of any of the 
following:

         (i)  the submission of any claim or the initiation of any legal 
     process, litigation or administrative or judicial investigation against 
     Arcadia Financial involving potential damages or penalties in an 
     uninsured amount in excess of $10,000 in any one instance or $25,000 in 
     the aggregate;

        (ii)  any change in the location of Arcadia Financial's principal 
     office or any change in the location of the Arcadia Financial's books 
     and records;

       (iii)  the occurrence of any Default or Event of Default;

        (iv)  the commencement or threat of any rule making or disciplinary 
     proceedings or any proceedings instituted by or against Arcadia 
     Financial in any federal, state or local court or before any 
     governmental body or agency, or before any arbitration board, or the 
     promulgation of any proceeding or any proposed or final rule which, if 
     adversely determined, would result in a Material Adverse Change with 
     respect to Arcadia Financial;

         (v)  the commencement of any proceedings by or against Arcadia 
     Financial under any applicable bankruptcy, reorganization, liquidation, 
     rehabilitation, insolvency or other similar law now or hereafter in 
     effect or of any proceeding in which a receiver, 


                                      32
<PAGE>

     liquidator, conservator, trustee or similar official shall have been, or 
     may be, appointed or requested for Arcadia Financial or any of its assets;

        (vi)  the receipt of notice that (A) Arcadia Financial is being 
     placed under regulatory supervision, (B) any license, permit, charter, 
     registration or approval necessary for the conduct of Arcadia 
     Financial's business is to be, or may be, suspended or revoked, or (C) 
     Arcadia Financial is to cease and desist any practice, procedure or 
     policy employed by Arcadia Financial in the conduct of its business, and 
     such cessation may result in a Material Adverse Change with respect to 
     Arcadia Financial; or

       (vii)  any other event, circumstance or condition that has resulted, or 
     has a material possibility of resulting, in a Material Adverse Change in 
     respect of Arcadia Financial.

         (g)  MAINTENANCE OF LICENSES.  Arcadia Financial shall maintain all 
licenses, permits, charters and registrations which are material to the 
performance by Arcadia Financial of its obligations under this Agreement and 
each other Transaction Document to which Arcadia Financial is a party or by 
which Arcadia Financial is bound.

         (h)  ERISA.  Arcadia Financial shall give Financial Security prompt 
notice of each of the following events (but in no event more than 30 days 
after the occurrence of the event): (i) an Accumulated Funding Deficiency, 
(ii) the failure to make a required contribution to a Plan or Multiemployer 
Plan, (iii) a Reportable Event, (iv) any action by a Commonly Controlled 
Entity to terminate any Plan or withdraw from any Multiemployer Plan, (v) any 
action by the PBGC to terminate or appoint a trustee to administer a Plan, 
(vi) the reorganization or insolvency of any Multiemployer Plan and (vii) an 
aggregate Underfunding for all Underfunded Plans in excess of $100,000.  In 
addition, Arcadia Financial shall promptly (but in no case more than 30 days 
following issuance or receipt by the Commonly Controlled Entity) provide to 
Financial Security a copy of all correspondence between a Commonly Controlled 
Entity and the PBGC, IRS, Department of Labor or the administrators of a 
Multiemployer Plan relating to any of the events described in the preceding 
sentence or the underfunded status, termination or possible termination of a 
Plan or a Multiemployer Plan.

         (i)  THIRD-PARTY BENEFICIARY.  Arcadia Financial agrees that 
Financial Security shall have all rights of a third-party beneficiary in 
respect of the Sale and Servicing Agreement, it being understood that the 
remedies of Financial Security with respect to the representations and 
warranties set forth in Section 2.4(b) thereof and the covenants set forth in 
Section 3.6(a) thereof shall be limited to the remedies set forth in the Sale 
and Servicing Agreement.

         (j)  INCORPORATION OF COVENANTS.  Arcadia Financial agrees to comply 
with each of Arcadia Financial's covenants set forth in the Transaction 
Documents and hereby incorporates such covenants by reference as if each were 
set forth herein.

         Section 2.09  NEGATIVE COVENANTS OF ARCADIA FINANCIAL.  Arcadia 
Financial hereby agrees that during the Term of this Agreement, unless 
Financial Security shall otherwise give its express written consent:


                                      33
<PAGE>

         (a)  RESTRICTIONS ON LIENS.  Arcadia Financial shall not create, 
incur or suffer to exist, or agree to create, incur or suffer to exist, or 
consent to cause or permit in the future (upon the happening of a contingency 
or otherwise) the creation, incurrence or existence of any Lien or 
Restriction on Transferability on the Receivables and the Other Trust 
Property except for the Liens in favor of the Seller, the Trust and the 
Indenture Collateral Agent for the benefit of the Indenture Trustee and 
Financial Security contemplated by the Transaction Documents and the 
Restrictions on Transferability imposed by the Purchase Agreement and the 
Sale and Servicing Agreement.

         (b)  IMPAIRMENT OF RIGHTS.  Arcadia Financial shall not take any 
action, or fail to take any action, if such action or failure to take action 
may interfere with the enforcement of any rights under the Transaction 
Documents that are material to the rights, benefits or obligations of the 
Seller, the Trust, the Indenture Trustee, the Noteholders or Financial 
Security.

         (c)  LIMITATION ON MERGERS.  Arcadia Financial shall not consolidate 
with or merge with or into any Person or transfer all or any material part of 
its assets to any Person (except as contemplated by the Transaction 
Documents) or liquidate or dissolve, provided that Arcadia Financial may 
consolidate with, merge with or into, or transfer all or a material part of 
its assets to, another corporation if (i) the acquiror of its assets, or the 
corporation surviving such merger or consolidation, shall be organized and 
existing under the laws of any state and shall be qualified to transact 
business in each jurisdiction in which failure to qualify would render any 
Transaction Document unenforceable or would result in a Material Adverse 
Change in respect of Arcadia Financial or the Trust Property; (ii) after 
giving effect to such consolidation, merger or transfer of assets, no Default 
or Event of Default shall have occurred or be continuing; (iii) such 
acquiring or surviving entity can lawfully perform the obligations of Arcadia 
Financial under the Transaction Documents and shall expressly assume in 
writing all of the obligations of Arcadia Financial, including, without 
limitation, its obligations under the Transaction Documents; and (iv) such 
acquiring or surviving entity and the consolidated group of which it is a 
part shall each have a net worth immediately subsequent to such 
consolidation, merger or transfer of assets at least equal to the net worth 
of Arcadia Financial immediately prior to such consolidation, merger or 
transfer of assets; and Arcadia Financial shall give Financial Security 
written notice of any such consolidation, merger or transfer of assets on the 
earlier of: (A) the date upon which any publicly available filing or release 
is made with respect to such action or (B) 10 Business Days prior to the date 
of consummation of such action. Arcadia Financial shall furnish to Financial 
Security all information requested by it that is reasonably necessary to 
determine compliance with this paragraph.

         (d)  WAIVER; AMENDMENTS, ETC.  Arcadia Financial shall not waive, 
modify, amend, supplement or consent to any waiver, modification, amendment 
of or supplement to, any of the provisions of any of the Transaction 
Documents without the prior written consent of Financial Security (i) unless, 
so long as no Insurer Default shall have occurred and be continuing, 
Financial Security shall have consented thereto in writing or (ii) if an 
Insurer Default shall have occurred and be continuing, which would adversely 
affect the interests of Financial Security.


                                      34
<PAGE>

         (e)  ERISA.  Arcadia Financial shall not contribute or incur any 
obligation to contribute to, or incur any liability in respect of, any Plan 
or Multiemployer Plan, except that Arcadia Financial may make such a 
contribution or incur such a liability provided that neither Arcadia 
Financial nor any Commonly Controlled Entity will:

         (i)  terminate any Plan so as to incur any material liability to the 
     PBGC;

        (ii)  knowingly participate in any "prohibited transaction" (as 
     defined in ERISA) involving any Plan or Multiemployer Plan or any trust 
     created thereunder which would subject any of them to a material tax or 
     penalty on prohibited transactions imposed under Section 4975 of the 
     Code or ERISA;

       (iii)  fail to pay to any Plan or Multiemployer Plan any contribution 
     which it is obligated to pay under the terms of such Plan or 
     Multiemployer Plan, if such failure would cause such Plan to have any 
     material Accumulated Funding Deficiency, whether or not waived; or

        (iv)  allow or suffer to exist any occurrence of a Reportable Event, 
     or any other event or condition, which presents a material risk of 
     termination by the PBGC of any Plan or Multiemployer Plan, to the extent 
     that the occurrence or nonoccurrence of such Reportable Event or other 
     event or condition is within the control of it or any Commonly 
     Controlled Entity.

         (f)  INSOLVENCY.  Arcadia Financial shall not commence any case, 
proceeding or other action (A) under any existing or future law of any 
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, 
reorganization or relief of debtors, seeking reorganization, arrangement, 
adjustment, winding-up, liquidation, dissolution, consolidation or other 
relief with respect to the Seller or (B) seeking appointment of a receiver, 
trustee, custodian or other similar official for the Seller.  Arcadia 
Financial shall not take any action in furtherance of, or indicating the 
consent to, approval of, or acquiescence in any of the acts set forth above.

                                 ARTICLE III.

                THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION

         Section 3.01  CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.  
Financial Security agrees to issue the Note Policy subject to satisfaction of 
the conditions set forth below.

         (a)  The obligation of Financial Security to issue the Note Policy is
subject to the following having occurred or being true (as the case may be):
(i) Financial Security shall have received evidence satisfactory to it that the
Seller shall have assigned, conveyed and transferred, or caused to be assigned,
conveyed and transferred, the Initial Receivables to the Trust, (ii) the Seller
shall have created a valid security interest in, and Lien on, the Receivables in
favor of the Trust, (iii) the Trust shall have created a valid security
interest in, and Lien on, the Indenture Property in favor of the Indenture
Collateral Agent on behalf of the Indenture Trustee (on behalf 


                                      35
<PAGE>

of the Noteholders) and Financial Security, (iv) the initial Premium shall 
have been paid in accordance with Section 3.02 hereof, (v) the 
representations and warranties of the Trust, the Seller and of Arcadia 
Financial and the Servicer set forth or incorporated by reference in this 
Agreement shall be true and correct on and as of the Closing Date, and (vi) 
each Transaction Document shall be in full force and effect and no Default 
thereunder shall have occurred and be continuing.

         (b)  The obligation of Financial Security to issue the Note Policy 
is further subject to the condition precedent that Financial Security shall 
have received on the Closing Date, or, in its sole and absolute discretion, 
received the opportunity to review prior to and on the Closing Date, the 
following, each dated the Closing Date and in full force and effect on such 
date, except as otherwise provided herein, in form and substance satisfactory 
to Financial Security and its counsel:

         (i)  a certificate of an Authorized Officer of each of the Seller 
     and Arcadia Financial stating that nothing has come to the attention of 
     such entity to indicate that the Registration Statement or the 
     Prospectus, on the date the Registration Statement became effective, 
     contained an untrue statement of a material fact or omitted to state a 
     material fact required to be stated therein or necessary to make the 
     statements therein not misleading, or that the Prospectus on any date on 
     which it was forwarded to the Underwriter for use in connection with the 
     offering of the Notes contained, or on the Closing Date contains, any 
     untrue statement of a material fact or omits to state a material fact 
     necessary in order to make the statements made therein, in light of the 
     circumstances under which they were made, not misleading;

        (ii)  copies, certified to be true copies by an Authorized Officer of 
     the Owner Trustee, of (i) the resolutions of the board of directors of 
     the Owner Trustee authorizing the execution, delivery and performance by 
     the Owner Trustee of this Agreement and each other Transaction Document 
     to which the Owner Trustee is a party and all transactions and documents 
     contemplated hereby and thereby, and of all other documents evidencing 
     any other necessary action of the Owner Trustee (which certification 
     shall state that such resolutions have not been modified, are in full 
     force and effect and constitute the only resolutions adopted by the 
     Owner Trustee's board of directors or any committee thereof with respect 
     thereto and (ii) the Certificate of Trust, certified by the Secretary of 
     State or other appropriate official of the State of Delaware;

       (iii)  copies, certified to be true copies by an Authorized Officer of 
     the Seller, of (i) the resolutions of the board of directors of the 
     Seller authorizing the execution, delivery and performance of this 
     Agreement and each other Transaction Document to which the Seller is a 
     party and all transactions and documents contemplated hereby and 
     thereby, and of all other documents evidencing any other necessary 
     action of the Seller (which certification shall state that such 
     resolutions have not been modified, are in full force and effect and 
     constitute the only resolutions adopted by the Seller's board of 
     directors or any committee thereof with respect thereto), (ii) the 
     corporate charter of the Seller and (iii) the by-laws, as amended, of 
     the Seller;


                                      36

<PAGE>

         (iv)   copies, certified to be true copies by an Authorized Officer 
     of Arcadia Financial, of (i) the resolutions of the board of directors 
     of Arcadia Financial authorizing the execution, delivery and performance 
     of this Agreement and each other Transaction Document to which Arcadia 
     Financial is a party and all other transactions and documents 
     contemplated hereby and thereby, and of all documents evidencing any 
     other necessary action of Arcadia Financial (which certification shall 
     state that such resolutions have not been modified, are in full force 
     and effect and constitute the only resolutions adopted by Arcadia 
     Financial's board of directors or any committee thereof with respect 
     thereto), (ii) the corporate charter of Arcadia Financial and (iii) the 
     by-laws, as amended, of Arcadia Financial;

         (v)    a certificate of an Authorized Officer of the Owner Trustee 
     stating that (i) all consents, licenses and approvals necessary for the 
     Owner Trustee to execute, deliver and perform this Agreement, the other 
     Transaction Documents to which the Owner Trustee is a party and all 
     other documents and instruments on the part of the Owner Trustee to be 
     delivered pursuant hereto or thereto have been obtained, and (ii) all 
     such consents, licenses and approvals are in full force and effect, the 
     Owner Trustee has not received any notice of any proceeding for the 
     revocation of any such license, charter, permit or approval, and, to the 
     Owner Trustee's knowledge, there is no threatened action or proceeding 
     or any basis therefor;

         (vi)   a certificate of an Authorized Officer of the Seller stating 
     that (i) all consents, licenses and approvals necessary for the Seller 
     to execute, deliver and perform this Agreement, the other Transaction 
     Documents to which the Seller is a party and all other documents and 
     instruments on the part of the Seller to be delivered pursuant hereto or 
     thereto have been obtained, and (ii) all such consents, licenses and 
     approvals are in full force and effect, the Seller has not received any 
     notice of any proceeding for the revocation of any such license, 
     charter, permit or approval, and, to the Seller's knowledge, there is no 
     threatened action or proceeding or any basis therefor;

         (vii)  a certificate of an Authorized Officer of Arcadia Financial 
     stating that (i) all consents, licenses and approvals necessary for 
     Arcadia Financial to execute, deliver and perform this Agreement, the 
     other Transaction Documents to which Arcadia Financial is a party and 
     all other documents and instruments on the part of Arcadia Financial to 
     be delivered pursuant hereto or thereto have been obtained, and (ii) 
     all such consents, licenses and approvals are in full force and effect, 
     Arcadia Financial has not received any notice of any proceeding for the 
     revocation of any such license, charter, permit or approval, and, to 
     Arcadia Financial's knowledge, there is no threatened action or 
     proceeding or any basis therefor;

         (viii) a certificate of an Authorized Officer of the Owner Trustee 
     certifying (i) the names and true signatures of the officers of the 
     Owner Trustee executing and delivering this Agreement, the other 
     Transaction Documents to which the Owner Trustee is a party and the 
     other documents to be executed and delivered by the Owner Trustee 
     hereunder and thereunder, (ii) that approval by the Owner Trustee's 
     equity holders of the


                                       37
<PAGE>

     execution and delivery of this Agreement, the other Transaction 
     Documents and all other such documents to be executed and delivered, by 
     the Owner Trustee hereunder, has been obtained or is not required, and 
     (iii) that no action for the dissolution of the Owner Trustee has been 
     adopted or contemplated and that no such proceedings have been commenced 
     or are contemplated;

         (ix)   a certificate of an Authorized Officer of the Seller 
     certifying (i) the names and true signatures of the officers of the 
     Seller executing and delivering this Agreement, the other Transaction 
     Documents to which the Seller is a party and the other documents to be 
     executed and delivered by the Seller hereunder and thereunder, (ii) 
     that approval by the Seller's stockholder of the execution and delivery 
     of this Agreement, the other Transaction Documents and all other such 
     documents to be executed and delivered, by the Seller hereunder, has 
     been obtained or is not required, and (iii) that no resolution for the 
     dissolution of the Seller has been adopted or contemplated and that no 
     such proceedings have been commenced or are contemplated;

         (x)    a certificate of an Authorized Officer of Arcadia Financial 
     certifying (i) the names and true signatures of the officers of Arcadia 
     Financial executing and delivering this Agreement, the other Transaction 
     Documents to which Arcadia Financial is a party and the other documents 
     to be executed and delivered by Arcadia Financial hereunder and 
     thereunder, (ii) that approval by Arcadia Financial's stockholders of 
     the execution and delivery of this Agreement, the other Transaction 
     Documents and all other such documents to be executed and delivered, by 
     Arcadia Financial hereunder, has been obtained or is not required, and 
     (iii) that no resolution for the dissolution of Arcadia Financial has 
     been adopted or contemplated and that no such proceedings have been 
     commenced or are contemplated;

         (xi)   a certificate of an Authorized Officer of the Trust to the 
     effect that (x) the representations and warranties of the Trust set 
     forth or incorporated by reference in this Agreement are true and 
     correct on and as of the Closing Date and (y) confirming that the 
     conditions precedent set forth herein with respect to the Trust are 
     satisfied;

         (xii)  a certificate of an Authorized Officer of the Seller to the 
     effect that (x) the representations and warranties of the Seller set 
     forth or incorporated by reference in this Agreement are true and 
     correct on and as of the Closing Date and (y) confirming that the 
     conditions precedent set forth herein with respect to the Seller are 
     satisfied;

         (xiii) a certificate of an Authorized Officer of Arcadia Financial 
     to the effect that (x) the representations and warranties of Arcadia 
     Financial set forth or incorporated by reference in this Agreement are 
     true and correct on and as of the Closing Date, and (y) confirming that 
     the conditions precedent set forth herein with respect to Arcadia 
     Financial are satisfied;

         (xiv)  favorable opinions of counsel and special Texas counsel to 
     the Seller and Arcadia Financial in form and substance satisfactory to 
     Financial Security and its counsel;


                                       38
<PAGE>

         (xv)   a favorable opinion of counsel to each of the Trust, the 
     Owner Trustee, the Indenture Trustee and the Collateral Agent and the 
     Indenture Collateral Agent, in form and substance satisfactory to 
     Financial Security and its counsel;

         (xvi)  evidence that amounts due and payable Financial Security 
     under Section 3.02 of this Agreement have been paid or that acceptable 
     provisions therefor have been made;

         (xvii) a fully executed copy of each of the Transaction Documents;

         (xviii) evidence that all actions necessary or, in the opinion of 
     Financial Security, desirable to perfect and protect the interests 
     transferred by the Sale and Servicing Agreement, the liens and security 
     interests created with respect to the Spread Account, the Liens and 
     security interest created in favor of the Indenture Collateral Agent 
     with respect to the Indenture Property pursuant to the Indenture, 
     including, without limitation, the filing of any financing statements 
     required by Financial Security or its counsel, have been taken;

         (xix)  a certificate or opinion of Independent Accountants addressed 
     to Financial Security in form and substance satisfactory to Financial 
     Security;

         (xx)   evidence that the Seller shall have deposited, or caused to 
     have been deposited, the deposits required under the Sale and Servicing 
     Agreement and the Spread Account Agreement, and any other deposits 
     required to be made on the Closing Date under the Transaction Documents 
     to which the Seller is a party; and

         (xxi)  such other documents, instruments, approvals (and, if 
     requested by Financial Security, certified duplicates of executed copies 
     thereof) or opinions as Financial Security may reasonably request.

         (c)  ISSUANCE OF RATINGS.  Financial Security shall have received 
confirmation that the risk secured by the Note Policy constitutes an 
investment grade risk by Standard and Poor's Corporation ("S&P") and an 
insurable risk by Moody's Investors Service, Inc. ("Moody's") and that the 
Class A-1 Notes, when issued, will be rated "A-1+" by S&P and "P-1" by 
Moody's, and that the Class A-2 Notes, the Class A-3 Notes, the Class A-4 
Notes, and the Class A-5 Notes, when issued, will be rated "AAA" by S&P and 
"Aaa" by Moody's.

         (d)  DELIVERY OF DOCUMENTS.  Financial Security shall have received 
evidence satisfactory to it that delivery has been made to the Trust or to a 
Custodian of the Receivable Files required to be so delivered pursuant to 
Section 2.2 of the Sale and Servicing Agreement.

         (e)  NO DEFAULT.  No Default or Event of Default shall have occurred 
and be continuing.

         (f)  NO LITIGATION, ETC.  No suit, action or other proceeding, 
investigation, or injunction or final judgment relating thereto, shall be 
pending or threatened before any court or


                                       39
<PAGE>

governmental agency in which it is sought to restrain or prohibit or to 
obtain damages or other relief in connection with any of the Transaction 
Documents or the consummation of the Transaction.

         (g)  LEGALITY.  No statute, rule, regulation or order shall have 
been enacted, entered or deemed applicable by any government or governmental 
or administrative agency or court which would make the transactions 
contemplated by any of the Transaction Documents illegal or otherwise prevent 
the consummation thereof.

         (h)  SATISFACTION OF CONDITIONS OF UNDERWRITING AGREEMENT.  All 
conditions in the Underwriting Agreement to the Underwriters' obligation to 
purchase the Notes (other than the issuance of the Note Policy) shall have 
been concurrently satisfied.

         Section 3.02   PAYMENT OF FEES AND PREMIUM.

         (a)  LEGAL FEES.  On the Closing Date, Arcadia Financial shall pay 
or cause to be paid legal fees and disbursements incurred by Financial 
Security in connection with the issuance of the Note Policy up to an amount 
not to exceed $20,000.00, plus disbursements.

         (b)  RATING AGENCY FEES.  The initial fees of S&P and Moody's with 
respect to the Notes and the Transaction shall be paid by Arcadia Financial 
in full on the Closing Date.  All periodic and subsequent fees of S&P or 
Moody's with respect to, and directly allocable to, the Notes shall be for 
the account of, shall be billed to, and shall be paid by Arcadia Financial.  
The fees for any other rating agency shall be paid by the party requesting 
such other agency's rating, unless such other agency is a substitute for S&P 
or Moody's in the event that S&P or Moody's is no longer rating the Notes, in 
which case the cost for such agency shall be paid by Arcadia Financial.

         (c)  AUDITORS' FEES.  In the event that Financial Security's 
auditors are required to provide information or any consent in connection 
with the Registration Statement fees therefor shall be paid by Arcadia 
Financial.  Any additional fees incurred by Financial Security after the 
Closing Date in respect of any additional consents shall be paid by Arcadia 
Financial on demand.

         (d)  PREMIUM.  In consideration of the issuance by Financial 
Security of the Note Policy, Arcadia Financial shall pay Financial Security 
the Premium and Premium Supplement, if any, as and when due in accordance 
with the terms of the Premium Letter.  The Premium and Premium Supplement, if 
any, paid hereunder or under the Sale and Servicing Agreement shall be 
nonrefundable without regard to whether Financial Security makes any payment 
under the Note Policy or any other circumstances relating to the Notes or 
provision being made for payment of the Notes prior to maturity.  Although 
the Premium is fully earned by Financial Security as of the Closing Date, the 
Premium shall be payable in periodic installments as provided in the Premium 
Letter.  Anything herein or in any of the Transaction Documents 
notwithstanding, upon the occurrence of an Event of Default, the entire 
outstanding balance of further installments of the Premium and Premium 
Supplement shall be immediately due and payable.  All payments of Premium and 
Premium Supplement, if any, shall be made by wire transfer to an account


                                       40
<PAGE>

designated from time to time by Financial Security by written notice to the 
Seller and Arcadia Financial.

         Section 3.03  REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION.  Each 
of Arcadia Financial and the Trust agrees to pay to Financial Security as 
follows:

         (a)  a sum equal to the total of all amounts paid by Financial 
Security under the Note Policy;

         (b)  any and all charges, fees, costs and expenses which Financial 
Security may reasonably pay or incur, including, but not limited to, 
attorneys' and accountants' fees and expenses, in connection with (i) any 
accounts established to facilitate payments under the Note Policy to the 
extent Financial Security has not been immediately reimbursed on the date 
that any amount is paid by Financial Security under the Note Policy, (ii) the 
administration, enforcement, defense or preservation of any rights in respect 
of any of the Transaction Documents, including defending, monitoring or 
participating in any litigation, proceeding (including any insolvency or 
bankruptcy proceeding in respect of any Transaction participant or any 
Affiliate thereof), restructuring or engaging in any protective measures or 
monitoring activities relating to any of the Transaction Documents, any party 
to any of the Transaction Documents or the Transaction, (iii) the foreclosure 
against, sale or other disposition of any collateral securing any obligations 
under any of the Transaction Documents or otherwise in the discretion of 
Financial Security, or pursuit of any other remedies under any of the 
Transaction Documents, to the extent such costs and expenses are not 
recovered from such foreclosure, sale or other disposition, (iv) any 
amendment, waiver or other action with respect to, or related to, any 
Transaction Document whether or not executed or completed, (v) preparation of 
bound volumes of the Transaction Documents, (vi) any review or investigation 
made by Financial Security in those circumstances where its approval or 
consent is sought under any of the Transaction Documents, (vii) any federal, 
state or local tax (other than taxes payable in respect of the gross income 
of Financial Security) or other governmental charge imposed in connection 
with the issuance of the Note Policy, and (viii) Financial Security reserves 
the right to charge a reasonable fee as a condition to executing any 
amendment, waiver or consent proposed in respect of any of the Transaction 
Documents (for the purpose of this paragraph (b), costs and expenses shall 
include a reasonable allocation of compensation and overhead attributable to 
time of employees of Financial Security spent in connection with the actions 
described in the foregoing clauses (ii) and (iii));

         (c)  interest on any and all amounts described in this Section 3.03 
from the date payable to or paid by Financial Security until payment thereof 
in full, and interest on any and all amounts described in Section 3.02, in 
each case payable to Financial Security at the Late Payment Rate per annum; 
and

         (d)  any payments made by Financial Security on behalf of, or 
advanced to, the Seller, Arcadia Financial, the Indenture Trustee, the Owner 
Trustee or the Trust including, without limitation, any amounts payable by 
Arcadia Financial in its capacity as Servicer or by the Trust, in respect of 
the Notes and any other amounts owed pursuant to any Transaction Documents; 
and any payments made by Financial Security as, or in lieu of, any servicing,


                                       41
<PAGE>

administration, management, trustee, custodial, collateral agency or 
administrative fees payable, in the sole discretion of Financial Security to 
third parties in connection with the Transaction.

         All such amounts are to be immediately due and payable without 
demand. Financial Security shall notify Arcadia Financial of amounts due 
hereunder.

         Section 3.04  CERTAIN OBLIGATIONS NOT RECOURSE TO ARCADIA FINANCIAL; 
RECOURSE TO TRUST PROPERTY.

         (a)  Notwithstanding any provision of Section 3.03 to the contrary, 
the payment obligations provided in Section 3.03(a), b(iii) and (d) (to the 
extent of advances to the Trust or to the Indenture Trustee in respect of 
payments on the Notes), in each case, to the extent that such payment 
obligations do not arise from any failure or default in the performance by 
Arcadia Financial or the Seller of any of its obligations under the 
Transaction Documents, and any interest on the foregoing in accordance with 
Section 3.03(c), shall not be recourse to Arcadia Financial, but shall be 
payable in the manner and in accordance with priorities provided in the Sale 
and Servicing Agreement.

         (b)  Financial Security covenants and agrees that it shall not be 
entitled to any payment from the Trust Property with respect to amounts owed 
under this Agreement other than as set forth in Section 4.6 and Section 9.1 
of the Sale and Servicing Agreement and Section 5.06 of the Indenture.

         Section 3.05  INDEMNIFICATION.

         (a)  INDEMNIFICATION BY ARCADIA FINANCIAL.  In addition to any and 
all rights of reimbursement, indemnification, subrogation and any other 
rights pursuant hereto or under law or in equity, Arcadia Financial agrees to 
pay, and to protect, indemnify and save harmless, Financial Security and its 
officers, directors, shareholders, employees, agents and each Person, if any, 
who controls Financial Security within the meaning of either Section 15 of 
the Securities Act or Section 20 of the Exchange Act from and against any and 
all claims, losses, liabilities (including penalties), actions, suits, 
judgments, demands, damages, costs or expenses (including, without 
limitation, fees and expenses of attorneys, consultants and auditors and 
reasonable costs of investigations) of any nature arising out of or relating 
to the Transaction by reason of:

         (i)    any statement, omission or action (other than of or by 
     Financial Security) in connection with the offering, issuance, sale or 
     delivery of the Notes;

         (ii)   the negligence, bad faith, willful misconduct, misfeasance 
     malfeasance or theft committed by any director, officer, employee or 
     agent of the Trust the Seller or Arcadia Financial in connection with 
     the Transaction;

         (iii)  the violation by the Trust, the Seller or Arcadia Financial 
     of an, federal, state or foreign law, rule or regulation, or any 
     judgment, order or decree applicable to it;


                                       42
<PAGE>

         (iv)   the breach by the Trust, the Seller or Arcadia Financial of 
     any representation, warranty or covenant under any of the Transaction 
     Documents or the occurrence, in respect of the Trust, the Seller or 
     Arcadia Financial, under any of the Transaction Documents of any event 
     of default or any event which, with the giving of notice or the lapse of 
     time or both, would constitute any event of default; or

         (v)    any untrue statement or alleged untrue statement of a 
     material fact contained in the Registration Statement or the Prospectus 
     or in any amendment or supplement thereto or any omission or alleged 
     omission to state therein a material fact required to be stated therein 
     or necessary to make the statements therein not misleading, except 
     insofar as such claims arise out of or are based upon any untrue 
     statement or omission (A) included in the Registration Statement or the 
     Prospectus and furnished by Financial Security in writing expressly for 
     use therein (all such information so furnished being referred to herein 
     as "Financial Security Information"), it being understood that the 
     Financial Security Information is limited to the information included 
     under the caption "Financial Security Assurance Inc.," and the financial 
     statements of Financial Security included in the Registration Statements 
     or the Prospectus or (B) included in the information set forth under the 
     caption "Underwriting" in the Prospectus.

         (b)  CONDUCT OF ACTIONS OR PROCEEDINGS.  If any action or proceeding 
(including any governmental investigation) shall be brought or asserted 
against Financial Security, any officer, director, shareholder, employee or 
agent of Financial Security or any Person controlling Financial Security 
(individually, an "Indemnified Party" and, collectively, the "Indemnified 
Parties") in respect of which indemnity may be sought from Arcadia Financial 
hereunder, Financial Security shall promptly notify Arcadia Financial in 
writing, and Arcadia Financial shall assume the defense thereof, including 
the employment of counsel satisfactory to Financial Security and the payment 
of all expenses.  The Indemnified Party shall have the right to employ 
separate counsel in any such action and to participate in the defense thereof 
at the expense of the Indemnified Party; PROVIDED, HOWEVER, that the fees and 
expenses of such separate counsel shall be at the expense of Arcadia 
Financial if (i) Arcadia Financial has agreed to pay such fees and expenses, 
(ii) Arcadia Financial shall have failed to assume the defense of such action 
or proceeding and employ counsel satisfactory to Financial Security in any 
such action or proceeding or (iii) the named parties to any such action or 
proceeding (including any impleaded parties) include both the Indemnified 
Party and the Trust, the Seller or Arcadia Financial, and the Indemnified 
Party shall have been advised by counsel that there may be one or more legal 
defenses available to it which are different from or additional to those 
available to the Trust, the Seller or Arcadia Financial (in which case, if 
the Indemnified Party notifies Arcadia Financial in writing that it elects to 
employ separate counsel at the expense of Arcadia Financial, Arcadia 
Financial shall not have the right to assume the defense of such action or 
proceeding on behalf of such Indemnified Party, it being understood, however, 
that Arcadia Financial shall not, in connection with any one such action or 
proceeding or separate but substantially similar or related actions or 
proceedings in the same jurisdiction arising out of the same general 
allegations or circumstances, be liable for the reasonable fees and expenses 
of more than one separate form of attorneys at any time for the Indemnified 
Parties, which firm shall be designated in writing by Financial Security). 
Arcadia Financial shall not be liable for any settlement of any such action or


                                       43
<PAGE>

proceeding effected without its written consent to the extent that any such 
settlement shall be prejudicial to it, but, if settled with its written 
consent, or if there be a final judgment for the plaintiff in any such action 
or proceeding with respect to which Arcadia Financial shall have received 
notice in accordance with this subsection (c) Arcadia Financial agrees to 
indemnify and hold the Indemnified Parties harmless from and against any loss 
or liability by reason of such settlement or judgment.

         (c)  CONTRIBUTION.  To provide for just and equitable contribution 
if the indemnification provided by Arcadia Financial is determined to be 
unavailable for any Indemnified Party (other than due to application of this 
Section), Arcadia Financial shall contribute to the losses incurred by the 
Indemnified Party on the basis of the relative fault of Arcadia Financial, on 
the one hand, and the Indemnified Party, on the other hand.

         Section 3.06  PAYMENT PROCEDURE.  In the event of the incurrence by 
Financial Security of any cost or expense or any payment by Financial 
Security for which it is entitled to be reimbursed or indemnified as provided 
above Arcadia Financial agrees to accept the voucher or other evidence of 
payment as prima facie evidence of the propriety thereof and the liability 
therefor to Financial Security.  All payments to be made to Financial 
Security under this Agreement shall be made to Financial Security in lawful 
currency of the United States of America in immediately available funds to 
the account number provided in the Premium Letter before 1:00 p.m. (New York, 
New York time) on the date when due or as Financial Security shall otherwise 
direct by written notice to Arcadia Financial.  In the event that the date of 
any payment to Financial Security or the expiration of any time period 
hereunder occurs on a day which is not a Business Day, then such payment or 
expiration of time period shall be made or occur on the next succeeding 
Business Day with the same force and effect as if such payment was made or 
time period expired on the scheduled date of payment or expiration date.  
Payments to be made to Financial Security under this Agreement shall bear 
interest at the Late Payment Rate from the date when due to the date paid.

         Section 3.07  SUBROGATION.  Subject only to the priority of payment 
provisions of the Sale and Servicing Agreement, each of the Trust, the 
Indenture Trustee, the Seller and Arcadia Financial acknowledges that, to the 
extent of any payment made by Financial Security pursuant to the Note Policy, 
Financial Security is to be fully subrogated to the extent of such payment 
and any additional interest due on any late payment, to the rights of the 
Noteholders to any moneys paid or payable in respect of the Notes under the 
Transaction Documents or otherwise.  Each of the Trust, the Indenture 
Trustee, the Seller and Arcadia Financial agrees to such subrogation and, 
further, agrees to execute such instruments and to take such actions as, in 
the sole judgment of Financial Security, are necessary to evidence such 
subrogation and to perfect the rights of Financial Security to receive any 
such moneys paid or payable in respect of the Notes under the Transaction 
Documents or otherwise.


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<PAGE>

                                   ARTICLE IV.

                         FURTHER AGREEMENTS; MISCELLANEOUS

         Section 4.01  EFFECTIVE DATE: TERM OF AGREEMENT.  This Agreement 
shall take effect on the Closing Date and shall remain in effect until the 
later of (a) such time as Financial Security is no longer subject to a claim 
under the Note Policy and the Note Policy shall have been surrendered to 
Financial Security for cancellation and (b) all amounts payable to Financial 
Security and the Noteholders under the Transaction Documents and under the 
Notes have been paid in full; PROVIDED, HOWEVER, that the provisions of 
Sections 3.02, 3.03, 3.04, 3.05, 3.06 and 4.03 hereof shall survive any 
termination of this Agreement.

         Section 4.02  FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS.  To 
the extent permitted by law, each of the Trust, the Seller and Arcadia 
Financial agree that it will, from time to time, execute, acknowledge and 
deliver, or cause to be executed, acknowledged and delivered, such 
supplements hereto and such further instruments as Financial Security may 
request and as may be required in Financial Security's judgment to effectuate 
the intention of or facilitate the performance of this Agreement.

         Section 4.03  OBLIGATIONS ABSOLUTE.

         (a)  The obligations of the Trust, the Seller and Arcadia Financial 
hereunder shall be absolute and unconditional, and shall be paid or performed 
strictly in accordance with this Agreement under all circumstances 
irrespective of:

         (i)    any lack of validity or enforceability of, or any amendment 
     or other modifications of, or waiver with respect to any of the 
     Transaction Documents, the Notes or the Note Policy; PROVIDED, that 
     Financial Security shall not have consented to any such amendment, 
     modification or waiver;

         (ii)   any exchange or release of any other obligations hereunder;

         (iii)  the existence of any claim, setoff, defense, reduction, 
     abatement or other right which the Trust, the Seller or Arcadia 
     Financial may have at any time against Financial Security or any other 
     Person;

         (iv)   any document presented in connection with the Note Policy 
     proving to be forged, fraudulent, invalid or insufficient in any respect 
     or any statement therein being untrue or inaccurate in any respect;

         (v)    any payment by Financial Security under the Note Policy 
     against presentation of a certificate or other document which does not 
     strictly comply with terms of the Note Policy;

         (vi)   any failure of the Seller or the Trust to receive the 
     proceeds from the Sale of the Notes;


                                       45
<PAGE>

     (vii)  any breach by the Trust, the Seller or Arcadia Financial of any 
     representation, warranty or covenant contained in any of the Transaction 
     Documents; or

     (viii) any other circumstances, other than payment in full, which might 
     otherwise constitute a defense available to, or discharge of, the Trust, 
     the Seller or Arcadia Financial in respect of any Transaction Document.

         (b)  The Trust, the Seller and Arcadia Financial and any and all 
others who are now or may become liable for all or part of the obligations of 
any of them under this Agreement agree to be bound by this Agreement and (i) 
to the extent permitted by law, waive and renounce any and all redemption and 
exemption rights and the benefit of all valuation and appraisement privileges 
against the indebtedness and obligations evidenced by any Transaction 
Document or by any extension or renewal thereof; (ii) waive presentment and 
demand for payment, notices of nonpayment and of dishonor, protest of 
dishonor and notice of protest; (iii) waive all notices in connection with 
the delivery and acceptance hereof and all other notices in connection with 
the performance, default or enforcement of any payment hereunder except as 
required by the Transaction Documents other than this Agreement; (iv) waive 
all rights of abatement, diminution, postponement or deduction, or to any 
defense other than payment, or to any right of setoff or recoupment arising 
out of any breach under any of the Transaction Documents, by any party 
thereto or any beneficiary thereof, or out of any obligation at any time 
owing to the Trust, the Seller or Arcadia Financial; (v) agree that its 
liabilities hereunder shall, except as otherwise expressly provided in this 
Section 4.03, be unconditional and without regard to any setoff, counterclaim 
or the liability of any other Person for the payment hereof; (vi) agree that 
any consent, waiver or forbearance hereunder with respect to an event shall 
operate only for such event and not for any subsequent event; (vii) consent 
to any and all extensions of time that may be granted by Financial Security 
with respect to any payment hereunder or other provisions hereof and to the 
release of any security at any time given for any payment hereunder, or any 
part thereof, with or without substitution, and to the release of any Person 
or entity liable for any such payment; and (viii) consent to the addition of 
any and all other makers, endorsers, guarantors and other obligors for any 
payment hereunder, and to the acceptance of any and all other security for 
any payment hereunder, and agree that the addition of any such obligors or 
security shall not affect the liability of the parties hereto for any payment 
hereunder.

         (c)  Nothing herein shall be construed as prohibiting the Trust, 
Seller or Arcadia Financial from pursuing any rights or remedies it may have 
against any other Person in a separate legal proceeding.

         Section 4.04  ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.

         (a)  This Agreement shall be a continuing obligation of the parties 
hereto and shall be binding upon and inure to the benefit of the parties 
hereto and their respective successors and permitted assigns.  Neither the 
Trust, the Seller nor Arcadia Financial may assign its rights under this 
Agreement, or delegate any of its duties hereunder, without the prior written 
consent of Financial Security.  Any assignment made in violation of this 
Agreement shall be null and void.


                                      46
<PAGE>

         (b)  Financial Security shall have the right to give participations 
in its rights under this Agreement and to enter into contracts of reinsurance 
with respect to the Note Policy upon such terms and conditions as Financial 
Security may in its discretion determine; PROVIDED, HOWEVER, that no such 
participation or reinsurance agreement or arrangement shall relieve Financial 
Security of any of its obligations hereunder or under the Note Policy.

         (c)  In addition, Financial Security shall be entitled to assign or 
pledge to any bank or other lender providing liquidity or credit with respect 
to the Transaction or the obligations of Financial Security in connection 
therewith any rights of Financial Security under the Transaction Documents or 
with respect to any real or personal property or other interests pledged to 
Financial Security, or in which Financial Security has a security interest, 
in connection with the Transaction.

         (d)  Except as provided herein with respect to participants and 
reinsurers, nothing in this Agreement shall confer any right, remedy or 
claim, express or implied, upon any Person, including, particularly, any 
Noteholder (except to the extent provided herein and without limitation of 
their rights to receive payments with respect to the Trust Property, 
including without limitation payments under the Note Policy), other than 
Financial Security, against the Trust, the Seller, Arcadia Financial or the 
Servicer, and all the terms, covenants, conditions, promises and agreements 
contained herein shall be for the sole and exclusive benefit of the parties 
hereto and their successors and permitted assigns. Neither the Trustee, the 
Owner Trustee nor any Noteholder shall have any right to payment from any 
premiums paid or payable hereunder or from any other amounts paid by the 
Seller or Arcadia Financial pursuant to Section 3.02, 3.03 or 3.04 hereof 
(without limitation to the rights of the Noteholders to receive payments with 
respect to the Trust Property, as provided in the Indenture and the Trust 
Agreement).

         Section 4.05  LIABILITY OF FINANCIAL SECURITY.  Neither Financial 
Security nor any of its officers, directors or employees shall be liable or 
responsible for: (a) the use which may be made of the Note Policy by the 
Owner Trustee or the Indenture Trustee or for any acts or omissions of the 
Owner Trustee or the Indenture Trustee in connection therewith; or (b) the 
validity, sufficiency, accuracy or genuineness of documents delivered to 
Financial Security (or its Fiscal Agent) in connection with any claim under 
the Note Policy, or of any signatures thereon, even if such documents or 
signatures should in fact prove to be in any or all respects invalid, 
insufficient, fraudulent or forged (unless Financial Security shall have 
actual knowledge thereof). In furtherance and not in limitation of the 
foregoing, Financial Security (or its Fiscal Agent) may accept documents that 
appear on their face to be in order, without responsibility for further 
investigation.

                                  ARTICLE V.

                          EVENTS OF DEFAULT; REMEDIES

         Section 5.01  EVENTS OF DEFAULT.  The occurrence of any of the 
following events shall constitute an Event of Default hereunder:


                                      47
<PAGE>

         (a)  any demand for payment shall be made under the Note Policy;

         (b)  any representation or warranty made by the Trust, the Seller, 
Arcadia Financial or the Servicer under any of the Related Documents, or in 
any certificate or report furnished under any of the Related Documents, shall 
prove to be untrue or incorrect in any material respect;

         (c)  (i) the Trust, the Seller, Arcadia Financial or the Servicer 
shall fail to pay, when due, any amount payable by the Seller, Arcadia 
Financial or the Servicer under any of the Related Documents (other than 
payments of principal and interest on the Notes); (ii) the Trust, the Seller, 
Arcadia Financial or the Servicer shall have asserted that any of the 
Transaction Documents to which it is a party is not valid and binding on the 
parties thereto; or (iii) any court, governmental authority or agency having 
jurisdiction over any of the parties to any of the Transaction Documents or 
property thereof shall find or rule that any material provision of any of the 
Transaction Documents is not valid and binding on the parties thereto;

         (d)  the Trust, the Seller, Arcadia Financial or the Servicer shall 
fail to perform or observe any other covenant or agreement contained in any 
of the Related Documents (except for the obligations described under clause 
(b) or (c) above) and such failure shall continue for a period of 30 days 
after written notice given to the Trust, the Seller, Arcadia Financial or the 
Servicer (as applicable); PROVIDED that, if such failure shall be of a nature 
that it cannot be cured within 30 days, such failure shall not constitute an 
Event of Default hereunder if within such 30 day period such party shall have 
given notice to Financial Security of corrective action it proposes to take, 
which corrective action is agreed in writing by Financial Security to be 
satisfactory and such party shall thereafter pursue such corrective action 
diligently until such default is cured;

         (e)  there shall have occurred an "Event of Default" as specified in 
Section 701(i) or 701(ii) of the Senior Note Indenture or any Supplemental 
Indenture thereto or the unpaid principal amount of, premium, if any, and 
accrued and unpaid interest on the Securities (as defined in the Senior Note 
Indenture) shall have, upon the declaration of the holders of the Securities, 
as specified in Section 702 of the Senior Note Indenture, become immediately 
due and payable;

         (f)  the Trust shall adopt a voluntary plan of liquidation or shall 
fail to pay its debts generally as they come due, or shall admit in writing 
its inability to pay its debts generally, or shall make a general assignment 
for the benefit of creditors, or shall institute any proceeding seeking to 
adjudicate the Trust insolvent or seeking a liquidation, or shall take 
advantage of any insolvency act, or shall commence a case or other proceeding 
naming the Trust as debtor under the United States Bankruptcy Code or similar 
law, domestic or foreign, or a case or other proceeding shall be commenced 
against the Trust under the United States Bankruptcy Code or similar law, 
domestic or foreign, or any proceeding shall be instituted against the Trust 
seeking liquidation of its assets and the Trust shall fail to take 
appropriate action resulting in the withdrawal or dismissal of such 
proceeding within 30 days or there shall be appointed or the Trust consent 
to, or acquiesce in, the appointment of a receiver, liquidator, conservator, 
trustee or 


                                      48
<PAGE>

similar official in respect of the Trust or the whole or any substantial part 
of its properties or assets, or the Trust shall take any corporate action in 
furtherance of any of the foregoing or the Trust terminates pursuant to 
Section 9.1 of the Trust Agreement;

         (g)  the Trust becomes taxable as an association (or publicly traded 
partnership) taxable as a corporation for federal or state income tax 
purposes;

         (h)  on any Distribution Date, the sum of Available Funds with 
respect to such Distribution Date and the amounts available in the Series 
1998-B Spread Account (prior to any deposits into such Spread Account from 
Spread Accounts related to any other Series) and the amount that may be 
withdrawn from the Reserve Account pursuant to Section 5.1 of the Sale and 
Servicing Agreement is less than the sum of the amounts payable on such 
Distribution Date pursuant to clauses (i) through (viii) of Section 4.6 of 
the Sale and Servicing Agreement;

         (i)  any default in the observance or performance of any covenant or 
agreement of the Trust made in the Indenture (other than a default in the 
payment of the interest or principal on any Note when due) or any 
representation or warranty of the Trust made in the Indenture or in any 
certificate or other writing delivered pursuant thereto or in connection 
therewith proving to have been incorrect in any material respect as of the 
time when the same shall have been made, and such default shall continue or 
not be cured, or the circumstance or condition in respect of which such 
misrepresentation or warranty was incorrect shall not have been eliminated or 
otherwise cured, for a period of 30 days after there shall have been given, 
by registered or certified mail, to the Trust and the Indenture Trustee by 
Financial Security, a written notice specifying such default or incorrect 
representation or warranty and requiring it to be remedied;

         (j)  the Average Delinquency Ratio with respect to any Determination 
Date shall have been equal to or greater than 9.20%;

         (k)  with respect to any Determination Date, the Cumulative Default 
Rate shall be equal to or greater than the percentage set forth in Column A 
of Schedule I attached hereto corresponding to such Determination Date;

         (l)  with respect to any Determination Date, the Cumulative Net Loss 
Rate shall be equal to or greater than the percentage set forth in Column B 
of Schedule I attached hereto corresponding to such Determination Date;

         (m)  the occurrence of an Event of Servicing Termination under the 
Sale and Servicing Agreement; or

         (n)  the occurrence of an "Event of Default" under and as defined in 
any Insurance and Indemnity Agreement among Financial Security, Arcadia 
Financial, the Seller and any other parties thereto, which "Event of Default" 
is not defined as a "Portfolio Performance Event of Default" in such 
Insurance and Indemnity Agreement.


                                      49
<PAGE>

         Section 5.02  REMEDIES; WAIVERS.

         (a)  Upon the occurrence of an Event of Default, Financial Security 
may exercise any one or more of the rights and remedies set forth below:

         (i)  declare the Premium Supplement to be immediately due and 
     payable, and the same shall thereupon be immediately due and payable, 
     whether or not Financial Security shall have declared an "Event of 
     Default" or shall have exercised, or be entitled to exercise, any other 
     rights or remedies hereunder;

        (ii)  exercise any rights and remedies available under the 
     Transaction Documents in its own capacity or in its capacity as the 
     Person entitled to exercise the rights of Controlling Party under the 
     Transaction Documents; or

       (iii)  take whatever action at law or in equity as may appear 
     necessary or desirable in its judgment to enforce performance of any 
     obligation of the Trust, the Seller or Arcadia Financial under the 
     Transaction Documents; PROVIDED, HOWEVER, that Financial Security shall 
     not be entitled hereunder to file any petition with respect to the Trust 
     or the Trust Property under any bankruptcy or insolvency law.

         (b)  Unless otherwise expressly provided, no remedy herein conferred 
upon or reserved is intended to be exclusive of any other available remedy, 
but each remedy shall be cumulative and shall be in addition to other 
remedies given under the Transaction Documents or existing at law or in 
equity.  No delay or failure to exercise any right or power accruing under 
any Transaction Document upon the occurrence of any Event of Default or 
otherwise shall impair any such right or power or shall be construed to be a 
waiver thereof, but any such right and power may be exercised from time to 
time and as often as may be deemed expedient.  In order to entitle Financial 
Security to exercise any remedy reserved to Financial Security in this 
Article, it shall not be necessary to give any notice.

         (c)  If any proceeding has been commenced to enforce any right or 
remedy under this Agreement, and such proceeding has been discontinued or 
abandoned for any reason, or has been determined adversely to Financial 
Security, then and in every such case the parties hereto shall, subject to 
any determination in such proceeding, be restored to their respective former 
positions hereunder, and, thereafter, all rights and remedies of Financial 
Security shall continue as though no such proceeding had been instituted.

         (d)  Financial Security shall have the right, to be exercised in its 
complete discretion, to waive any covenant, Default or Event of Default by a 
writing setting forth the terms, conditions and extent of such waiver signed 
by Financial Security and delivered to the Seller and Arcadia Financial.  Any 
such waiver may only be effected in writing duly executed by Financial 
Security, and no other course of conduct shall constitute a waiver of any 
provision hereof. Unless such writing expressly provides to the contrary, any 
waiver so granted shall extend only to the specific event or occurrence so 
waived and not to any other similar event or occurrence which occurs 
subsequent to the date of such waiver.


                                      50
<PAGE>

                                 ARTICLE VI.

                                MISCELLANEOUS

         Section 6.01  AMENDMENTS, ETC..  This Agreement may be amended, 
modified or terminated only by written instrument or written instruments 
signed by the parties hereto.  No act or course of dealing shall be deemed to 
constitute an amendment, modification or termination hereof.

         Section 6.02  NOTICES.  All demands, notices and other 
communications to be given hereunder shall be in writing (except as otherwise 
specifically provided herein) and shall be mailed by registered mail or 
overnight carrier, personally delivered or telecopied (with confirmation by 
registered mail) to the recipient as follows:

         (a)  To Financial Security:

              Financial Security Assurance Inc.
              350 Park Avenue
              New York, New York 10022
              Attention: Surveillance Department
              Confirmation:  (212) 826-0100
              Telecopy Nos.: (212) 339-3518
                             (212) 339-3529

              (in each case in which notice or other communication to 
              Financial Security refers to an Event of Default, a claim on 
              the Note Policy or with respect to which failure on the part of 
              Financial Security to respond shall be deemed to constitute 
              consent or acceptance, then a copy of such notice or other 
              communication should also be sent to the attention of each of 
              the General Counsel and the Head--Financial Guaranty Group and 
              shall be marked to indicate "URGENT MATERIAL ENCLOSED").

         (b)  To the Seller:

              Arcadia Receivables Finance Corp.
              7825 Washington Avenue South, Suite 410
              Minneapolis, Minnesota 55439-2435
              Telephone:  (612) 942-9888
              Telecopier: (612) 942-6730


                                      51
<PAGE>

         (c)  To Arcadia Financial:

              Arcadia Financial Ltd.
              7825 Washington Avenue South
              Minneapolis, Minnesota 55439-2435
              Telephone:     (612) 942-9880
              Telecopier:    (612) 942-6730

         (d)  To the Trust:

              Arcadia Automobile Receivables Trust, 1998-B
              c/o Wilmington Trust Company,
                 as Owner Trustee
              Rodney Square North, 1100 North Market Street 
              Wilmington, Delaware 19890
              Attention: Corporate Trust Administration
              Telephone:  (302) 651-1000
              Telecopier: (302) 651-8882

              with a copy to:

              Wilmington Trust Company, as Owner Trustee
              Rodney Square North, 1100 North Market Street 
              Wilmington, Delaware 19890

         A party may specify an additional or different address or addresses 
by writing mailed or delivered to the other party as aforesaid.  All such 
notices and other communications shall be effective upon receipt.

         Section 6.03  SEVERABILITY.  In the event that any provision of this 
Agreement shall be held invalid or unenforceable by any court of competent 
jurisdiction, the parties hereto agree that such holding shall not invalidate 
or render unenforceable any other provision hereof.  The parties hereto 
further agree that the holding by any court of competent jurisdiction that 
any remedy pursued by any party hereto is unavailable or unenforceable shall 
not affect in any way the ability of such party to pursue any other remedy 
available to it.

         Section 6.04  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY 
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         Section 6.05  CONSENT TO JURISDICTION.

         (a)  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES 
THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED STATES 
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE 
STATE OF NEW YORK LOCATED IN THE CITY AND 

                                      52
<PAGE>

COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION, 
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE 
TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR RECOGNITION OR ENFORCEMENT OF 
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY 
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE 
HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT. 
THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR 
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY 
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT 
PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO 
ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION 
OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE 
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT 
IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS 
IMPROPER OR THAT THE RELATED DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT 
BE LITIGATED IN OR BY SUCH COURTS.

         (b)  To the extent permitted by applicable law, the parties hereto 
shall not seek and hereby waive the right to any review of the judgment of 
any such court by any court of any other nation or jurisdiction which may be 
called upon to grant an enforcement of such judgment.

         (c)  Arcadia Financial and the Seller hereby irrevocably appoints 
and designates CT Corporation System, whose address is 1633 Broadway, New 
York, New York 10019, as its true and lawful attorney and duly authorized 
agent for acceptance of service of legal process.  The Seller and Arcadia 
Financial agrees that service of such process upon such Person shall 
constitute personal service of such process upon it.

         (d)  Nothing contained in the Agreement shall limit or affect 
Financial Security's right to serve process in any other manner permitted by 
law or to start legal proceedings relating to any of the Transaction 
Documents against the Seller or Arcadia Financial or its property in the 
courts of any jurisdiction.

         Section 6.06  CONSENT OF FINANCIAL SECURITY.  In the event that 
Financial Security's consent is required under any of the Transaction 
Documents, the determination whether to grant or withhold such consent shall 
be made by Financial Security in its sole discretion without any implied duty 
towards any other Person, except as otherwise expressly provided therein.

         Section 6.07  COUNTERPARTS.  This Agreement may be executed in 
counterparts by the parties hereto, and all such counterparts shall 
constitute one and the same instrument.

         Section 6.08  HEADINGS.  The headings of articles and sections and 
the table of contents contained in this Agreement are provided for 
convenience only.  They form no part of 

                                      53
<PAGE>

this Agreement and shall not affect its construction or interpretation.  
Unless otherwise indicated, all references to articles and sections in this 
Agreement refer to the corresponding articles and sections of this Agreement.

         Section 6.09  TRIAL BY JURY WAIVED.  EACH PARTY HERETO HEREBY 
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY 
IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR 
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION.  EACH 
PARTY HERETO (A) CERTIFIES THAI NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY 
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN 
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) 
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS 
TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.

         Section 6.10  LIMITED LIABILITY.  No recourse under any Transaction 
Document shall be had against, and no personal liability shall attach to, any 
officer, employee, director, affiliate or shareholder of any party hereto, as 
such, by the enforcement of any assessment or by any legal or equitable 
proceeding, by virtue of any statute or otherwise in respect of any of the 
Transaction Documents, the Notes or the Note Policy, it being expressly 
agreed and understood that each Transaction Document is solely a corporate 
obligation of each party hereto, and that any and all personal liability, 
either at common law or in equity, or by statute or constitution, of every 
such officer, employee, director, affiliate or shareholder for breaches by 
any party hereto of any obligations under any Transaction Document is hereby 
expressly waived as a condition of and in consideration for the execution and 
delivery of this Agreement.

         Section 6.11  LIMITED LIABILITY OF WILMINGTON TRUST COMPANY.  It is 
expressly understood and agreed by the parties hereto that (a) this Agreement 
is executed and delivered by Wilmington Trust Company, not individually or 
personally but solely as Owner Trustee on behalf of the Trust, (b) each of 
the representations, undertakings and agreements herein made on the part of 
the Trust is made and intended not as personal representations, undertakings 
and agreements by Wilmington Trust Company, but are made and intended for the 
purpose of binding only the Trust Estate, (c) nothing herein contained shall 
be construed as creating any liability on Wilmington Trust Company, 
individually or personally, to perform any covenant of the Trust either 
expressed or implied contained herein, all such liability, if any, being 
expressly waived by the parties hereto and by any person claiming by, through 
or under such parties and (d) under no circumstances shall Wilmington Trust 
Company be personally liable for the payment of any indebtedness or expenses 
of the Trust or be liable for the breach or failure of any obligation, 
representation, warranty or covenant made or undertaken by the Trust under 
this Agreement.

         Section 6.12  ENTIRE AGREEMENT.  This Agreement and the Note Policy 
set forth the entire agreement between the parties with respect to the 
subject matter thereof, and this 

                                      54
<PAGE>

Agreement supersedes and replaces any agreement or understanding that may 
have existed between the parties prior to the date hereof in respect of such 
subject matter.


                                      55

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have duly executed and 
delivered this Insurance and Indemnity Agreement, all as of the day and year 
first above written.

                                    FINANCIAL SECURITY ASSURANCE INC.


                                    By: /s/ Raymond Galkowski
                                        --------------------------------------
                                        Authorized Officer


                                    ARCADIA AUTOMOBILE RECEIVABLES TRUST, 
                                      1998-B

                                    By:  Wilmington Trust Company, as Owner 
                                         Trustee under the Trust Agreement


                                         By:
                                             ---------------------------------


                                    ARCADIA FINANCIAL LTD.


                                    By:
                                        --------------------------------------
                                        John A. Witham
                                        Executive Vice President and
                                        Chief Financial Officer


                                    ARCADIA RECEIVABLES FINANCE CORP.


                                    By:
                                        --------------------------------------
                                        John A. Witham
                                        Senior Vice President and
                                        Chief Financial Officer


                                       56
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have duly executed and 
delivered this Insurance and Indemnity Agreement, all as of the day and year 
first above written.

                                    FINANCIAL SECURITY ASSURANCE INC.


                                    By:
                                        --------------------------------------
                                        Authorized Officer


                                    ARCADIA AUTOMOBILE RECEIVABLES TRUST, 
                                      1998-B

                                    By:  Wilmington Trust Company, as Owner 
                                         Trustee under the Trust Agreement


                                         By: /s/ Denise Geran
                                             ---------------------------------


                                    ARCADIA FINANCIAL LTD.


                                    By:
                                        --------------------------------------
                                        John A. Witham
                                        Executive Vice President and
                                        Chief Financial Officer


                                    ARCADIA RECEIVABLES FINANCE CORP.


                                    By:
                                        --------------------------------------
                                        John A. Witham
                                        Senior Vice President and
                                        Chief Financial Officer


                                       57
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have duly executed and 
delivered this Insurance and Indemnity Agreement, all as of the day and year 
first above written.

                                    FINANCIAL SECURITY ASSURANCE INC.


                                    By:
                                        --------------------------------------
                                        Authorized Officer


                                    ARCADIA AUTOMOBILE RECEIVABLES TRUST, 
                                      1998-B

                                    By:  Wilmington Trust Company, as Owner 
                                         Trustee under the Trust Agreement


                                         By:
                                             ---------------------------------


                                    ARCADIA FINANCIAL LTD.


                                    By: /s/ John A. Witham
                                        --------------------------------------
                                        John A. Witham
                                        Executive Vice President and
                                        Chief Financial Officer


                                    ARCADIA RECEIVABLES FINANCE CORP.


                                    By: /s/ John A. Witham
                                        --------------------------------------
                                        John A. Witham
                                        Senior Vice President and
                                        Chief Financial Officer


                                       58
<PAGE>

                                                                      SCHEDULE I

<TABLE>
<CAPTION>

Determination Date*     Cumulative Default Rate     Cumulative Net Loss Rate
     (month)                  (Column A)                  (Column B)
<S>                     <C>                         <C>
      0 to 3                    2.66%                          1.33%
      3 to 6                    5.32%                          2.66%
      6 to 9                    7.71%                          3.85%
      9 to 12                   9.84%                          4.92%
     12 to 15                  12.68%                          6.34%
     15 to 18                  15.25%                          7.63%
     18 to 21                  17.50%                          8.75%
     21 to 24                  19.45%                          9.73%
     24 to 27                  20.47%                         10.24%
     27 to 30                  21.29%                         10.65%
     30 to 33                  22.01%                         11.01%
     33 to 36                  22.63%                         11.32%
     36 to 39                  22.93%                         11.47%
     39 to 42                  23.16%                         11.58%
     42 to 45                  23.36%                         11.68%
     45 to 48                  23.52%                         11.76%
     48 to 51                  23.65%                         11.83%
     51 to 54                  23.76%                         11.88%
     54 to 57                  23.84%                         11.92%
     57 to 60                  23.91%                         11.95%
     60 to 63                  23.95%                         11.97%
     63 to 66                  23.98%                         11.99%
     66 to 69                  23.99%                         12.00%
  69 and higher                24.00%                         12.00%

</TABLE>

__________________

*     Such Determination Date occurring after the designated calendar months 
succeeding the Series 1998-B Closing Date appearing first in the column 
below, and prior to or during the designated calendar months succeeding the 
Series 1998-B Distribution Date appearing second in the column below.


                                       59